Government Begins to Announce New Austerity Measures to Secure Aid.
Greece on Wednesday decided to cut pensions, tax low-income earners and put thousands of public workers in a special labor reserve this year as the country scrambles to meet fresh austerity demands from its international creditors in exchange for aid.
In a statement following a six-hour-long cabinet meeting, the government affirmed its commitment to meet its budget targets and said it would not abandon Europe's common currency, the euro.
"These decisions send a message to our partners and the markets that Greece will and can fulfill its obligations and remain within the core of the euro and the European Union," the government said in a statement.
Greece's government is under pressure to come up with more than €6 billion ($8 billion) in additional budget cuts over the next two years to secure the release of the country's next bailout payment, even as worries mount that further austerity measures could ignite more popular protests and political instability.
The announcement follows two days of talks with officials from the EU, the European Central Bank and the International Monetary Fund—dubbed the troika—over what new measures Greece would take to rein in a budget deficit set to overshoot targets in 2011 and 2012.
Talks with the troika are to continue over the weekend in Washington, where Greece's finance minister, Evangelos Venizelos, is set to attend the annual meetings of the World Bank and International Monetary Fund.
At stake is an €8 billion aid tranche that Greece hopes to receive in the next few weeks. Without it, the government will run out of money by the middle of October.
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.
Mr. Venizelos in parliament ahead of the cabinet session told lawmakers 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," he said.
In its statement, the government said that with immediate effect it will begin culling some 30,000 workers from the public sector payroll.
Those workers will be put in a reserve labor pool at 60% of their salary for a year, after which they would be dismissed if no other suitable jobs were found for them in the public sector.
The government also said it would reduce the taxable income threshold to €5,000 from €8,000 currently, a move that is expected to affect hundreds of thousands of the working poor and self-employed—-and which also reflects Greece's inability to crack down on widespread tax evasion.
Additional measures will target pensions. Retirees collecting more than €1,200 in their gross monthly pensions would see their pensions above that threshold cut by 20%. For retirees under the age of 55, cuts will range up to 40% for pensions above a threshhold of €1,000 a month.
Unions have already announced their opposition to the measures. On Thursday, public transit workers in Athens will stage a 24-hour walkout, while teachers are also planning a nationwide strike. Earlier Wednesday, Greece's two main umbrella unions—private-sector GSEE and civil-servants union ADEDY—-announced a nationwide public sector strike for Oct. 5, and a nationwide general strike on Oct. 19.
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 [gross domestic product]," the report said. Greece's GDP is roughly €230 billion.
Greece's second-quarter economic data are "really bad," said IMF analysts, and there are indications that there is no improvement in third-quarter figures. The IMF now has a bleaker economic outlook for Greece, expecting contractions of 5.5% in 2011 and 2.5% in 2012.
A weaker-than-expected economy widened the deficit gap. But delays in putting austerity measures in place and lower yields than expected from some measures also had an impact, the IMF said.
Some Greek lawmakers are uneasy about new austerity moves after 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 some members of the ruling party believe Greece will need a multiparty coalition government for the political clout to push through new reforms.
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