Greece Accelerates Cuts to Wages, Pensions to Ensure Next Bailout Payment

By Eleni Chrepa and Natalie Weeks - Sep 22, 2011 4:53 PM GMT+0700
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Greek public sector employees burn their tax notices outside the Finance Ministry in Athens. The latest round of cuts targeting civil servants’ wages and pensioners were demanded by international lenders. Photographer: Louisa Gouliamaki/AFP/Getty Images

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Sept. 21 (Bloomberg) -- Greek Finance Minister Evangelos Venizelos prodded lawmakers to endorse deeper budget cuts to keep emergency loans flowing and avoid default. He spoke to lawmakers in Parliament today in Athens. Andrea Catherwood reports on Bloomberg Television's "Last Word." (Source: Bloomberg)

Greece said it will accelerate budget cuts to keep emergency loans flowing, extending austerity measures that have deepened a recession and failed to ease doubts that it can avoid default.

Subway, tram, train, bus and trolley workers and state- school teachers are holding a 24-hour strike in Athens today to oppose cuts in pensions and workers’ pay. Flights to and from the Athens International Airport will be disrupted as air- traffic controllers walk out for three hours.

The latest round of cuts targeting civil servants’ wages and pensioners were demanded by international lenders to ensure Greece reach deficit-reduction targets in a 110 billion-euro ($151 billion) bailout and receive a payment due next month.

The cuts will enable Prime Minister George Papandreou to address his biggest deficit, the “credibility deficit,” Jens Bastian, the Alpha Bank Fellow for Southeast Europe at St. Antony’s College at the University of Oxford, said in a Bloomberg Television interview today. Meeting international targets and reducing civil-service costs are “a matter of national urgency,” he said.

Finance Minister Evangelos Venizelos heads to Washington tomorrow to attend the annual meetings of the International Monetary Fund where he will hold talks with IMF Managing Director Christine Lagarde.

Without the infusion of emergency loans, “the risk is that the system, the financial sector and the real economy stop functioning,” Venizelos told Parliament in Athens before Papandreou convened his inner Cabinet yesterday to complete the cuts.

Latest Cuts

Measures announced following two rounds of talks with the European Union and the IMF include: a 20 percent cut in pensions of more than 1,200 euros ($1,650) a month, according to a government statement; pensions paid to those younger than 55 will be shaved by 40 percent for the amount exceeding 1,000 euros and wages will be lowered for 30,000 state employees.

With an 8 billion-euro aid payment in the balance, Greek creditors are also in the final stages of negotiating a bond exchange intended to reduce the country’s debt load of about 350 billion euros. The swap was part of a second rescue set by European leaders on July 21.

Fund Ratification

EU officials are squabbling over implementation of the agreement, which includes an upgrade of the bailout fund, as national legislatures ratify its terms, countering public opposition to channeling more money to keep Greece in the currency union.

Greek bonds rose in early trading today, sending the yield on two-year notes down 27 basis points to 66.2 percent at 12:20 p.m. in Athens.

While Greece says it has enough cash to cover its needs for October, any disbursement of new funds would likely only see it through to the end of the year.

Talks on the Greek aid payments resumed after IMF and EU monitors earlier this month suspended the review for a sixth tranche of loans following the discovery of an unexpected hole in the budget.

Cuts totaling about 28 billion euros that were outlined in June, which were made to ensure the release of the previous aid payment, will be completed by 2014 instead of 2015, as planned, the government statement said yesterday.

The austerity measures are deepening a three-year recession, making it harder for the government to meet the deficit goals laid out in its aid package. The IMF’s representative in Athens said Sept. 19 the economy will shrink 5.5 percent this year and another 2.5 percent next year.

Greek government figures showed the 2011 deficit through August widened 22 percent to 18.9 billion euros, more than the target of 18.1 billion euros for the period. Greece pledged to reduce its deficit to about 7.5 percent of gross domestic product this year from 10.5 percent in 2010.

To contact the reporters on this story: Natalie Weeks in Athens at nweeks2@bloomberg.net; Eleni Chrepa in Athens at echrepa@bloomberg.net

To contact the editor responsible for this story: James Hertling or jhertling@bloomberg.net