Greece's government cabinet Wednesday weighed demands for €6 billion ($8.22 billion) in additional budget cuts to secure the release of the country's next bailout payment, amid worries that further austerity measures could ignite more popular protest.
Greek Finance Minister Evangelos Venizelos set the tone in parliament ahead of the cabinet session, telling lawmakers that they must impose more reforms or risk a collapse in Greece's economy. "We have not fully understood the danger (we face), that the system could cease operating, that the national economy could cease operating." A government spokesman said the government could announce details of new measures later in the day.
The government late Tuesday reported progress in talks with the European Union, the European Central Bank and the International Monetary Fund—the "troika"—but signaled there still was no final deal that would secure the country the next installment of badly needed aid. Negotiators hope to clinch a deal by Oct. 3, in time for it to be approved at a scheduled meeting of the 17 euro-zone countries in Luxembourg.
Greece's finance ministry said the negotiations would continue over the weekend in Washington, where Mr. Venizelos is due to attend the annual meetings of the World Bank and International Monetary Fund. Many Greek political leaders are looking beyond the troika talks to possible protests against the new measures, which would include accelerated public-sector layoffs and higher taxes and would shut down dozens of publicly-funded organizations.
"Greeks are hard-pressed and will be asked to pay more," said a senior member of the governing Socialist Party, or Pasok. "There are fears of a tax revolt and even a revolt within the party when those measures will come up for vote in parliament."
Some lawmakers are uneasy when back in their districts, remembering the violent protests of early summer. They say constituents are coming into their offices asking for help to cover utility bills as unemployment climbs higher. Opposition parties are clamoring for new elections. Even Pasok party members believe Greece will need a multiparty coalition government for the political clout to push through new reforms.
"There has been talk for some time that a single-party government can't deal with such a crisis," the senior Pasok member said. "I don't think there will be a referendum on whether Greece should stay in the euro zone. I think there will be early elections."
At last week's meeting of European finance ministers, officials warned that Greece may not receive an €8 billion aid slice in October if it fails to bring its budget back in line with bailout targets. Without that aid, Greece will run out of cash by mid-October.
According to Greek government officials, the troika is pressing Greece to cut 100,000 or more public jobs by 2015, either through outright layoffs or by placing some of those workers in a special labor reserve at reduced pay. About 25,000 workers are likely to be sacked immediately.
Greece is also being asked to slash civil service pay and benefits, make deeper cuts to pensions, close dozens of state bodies, and raise taxes on the poor. The inspectors have also asked Greece to consider raising taxes on tobacco, alcohol and luxury goods, as well as to rescind a tax rebate on home heating oil as winter approaches.
Although no final decisions have been taken, unions have already announced their opposition to the measures. Later this week, public transit workers in Athens will stage the first of rolling 24-hour strikes over the fresh austerity plans, while teachers are also planning a nationwide strike.
Greece's public sector umbrella union ADEDY has already announced a series of protest rallies and work stoppages in the days ahead, culminating in a 24-hour nationwide strike Oct. 6. The union's private sector counterpart, GSEE, is also expected to announce its own general strike on the same day.
The talks Tuesday, held via a conference call, were the second round of discussions this week between Greece and the troika. On Monday, the two sides held a first conference call which Greek officials described as highly productive, fostering expectations that a deal on austerity measures could be reached as early as Tuesday.
Even though no final agreement has yet been reached, senior troika officials are expected to return to Athens for face-to-face meetings next week. "I am confident that the next aid tranche will be paid," a senior finance ministry official told reporters after Tuesday's call.
The IMF said in a report Tuesday that Greece's recession will stretch into next year and that it is facing an estimated €4.6 billion shortfall in its efforts to cut its 2012 budget deficit. "Relative to the target for 2012, we are looking at a gap of about 2% of GDP," the report said. Greece's GDP is roughly €230 billion.
Greece's second-quarter economic data are "really bad," said IMF analysts. There are early indications that there is no improvement in third-quarter data, it added. The IMF now has a bleaker outlook for Greece, expecting economic contractions of 5.5% in 2011 and 2.5% in 2012.
A weaker-than-expected economy contributed to the growing deficit gap. But delays in program implementation and lower yields than expected from some measures also contributed, the IMF said.
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