Prime Minister George Papandreou, vowing to avoid a default and keep Greece in the euro, approved new measures to help plug a yawning budget gap as resistance builds at home and in Europe to extending more aid to the European Union’s most-indebted nation.
The Cabinet yesterday voted to cut one month’s wages from all elected officials and impose an annual charge on all property for two years, to be levied through electricity bills to ensure rapid collection, Finance Minister Evangelos Venizelos told reporters in the northern Greek city of Thessaloniki.
The measures will help the country meet deficit targets of 17.1 billion euros ($23.6 billion) in 2011 and 14.9 billion euros in 2012, covering a 2 billion-euro shortfall for this year that has been exacerbated by a deepening recession, he said.
“We have to do everything we can to emerge from this difficult situation,” Venizelos said. “We cannot give anyone a pretext to say that we are at fault.”
The salary cuts and taxes come after the euro slumped to a six-month low and Greek two-year notes yields surged to a record on concern the country is sliding toward default. EU leaders’ divisions threaten to scupper a second bailout approved in July, and German Finance Minister Wolfgang Schaeuble on Sept. 10 repeated a threat to withhold the next 8 billion-euro payment from the original rescue unless Greece shows it can meet fiscal targets agreed with the EU.
Against the dollar, the euro lost 0.2 percent to $1.3625 at 1:02 p.m. in Athens, after earlier touching $1.3555, the weakest since Feb. 22.
Papandreou said two days ago that the government’s top priority is “to save the country from bankruptcy” and said he would do whatever’s necessary to meet targets.
The government now expects the economy to shrink 5 percent this year, worse than the June estimate of 3.8 percent from the EU and International Monetary Fund, and a deeper contraction than in the past two years. The forecast damps hopes that Greece will meet its pledge to lower its budget deficit to 7.5 percent of gross domestic product in 2011, with the government blaming the slump for a budget gap that widened 22 percent in the first eight months of the year.
The shortfall, which excludes outlays by state-owned institutions and companies, increased to 18.1 billion euros to end August from 14.8 billion euros a year earlier, preliminary data released by the Athens-based Finance Ministry showed today. The figure beat a target of 18.9 billion euros set in June.
Greek 10-year government bonds erased a gain, pushing the yield on the securities up 62 basis points to 21.2 percent as of 11:39 a.m. in London.
Venizelos, who on Sept. 6 promised to speed austerity measures pledged in return for the emergency loans, said yesterday the situation was “critical” and that the next two months would be “hellish.”
The government must draft a credible 2012 budget, proceed with state asset sales and complete a voluntary debt swap by the end of October while EU leaders work on the final touches to the European Financial Stability Facility, he said.
Speculation of a Greek default is aimed at the euro and must be countered if the region is to stop the spread of the debt crisis, Venizelos said on Sept. 10.
Yesterday he said the lack of institutions in the euro area underpinned the volatility in global markets in recent days.
“Greece is too small to be a catalyst for the future of the euro area,” he said. “It accounts for 2 percent of the GDP of the euro area and less than 3 percent of the area’s debt. We can’t let our country become a pretext for divisions that aren’t about us.”
Concerns about the prospect of default have deepened since a scheduled quarterly review of Greece’s progress by the EU and IMF was unexpectedly suspended for 10 days last week. The cost of insuring Greek debt against default jumped 212 basis points Sept. 9 to a record 3,238, according to CMA. The five-year contracts signal there’s a 92 percent probability the country won’t meet its debt commitments.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday he welcomed the commitment by the Greek government to meet fiscal targets this year and in 2012.
The measures announced yesterday “will go a long way to meeting the fiscal targets,” Rehn said in an e-mailed statement. European Commission staff will return to Athens in coming days to provide “technical support” to Greek authorities.
“European Union representatives and government officials in the euro zone member states have reminded Greece in no unclear terms that the heart of the matter is not anymore what you decide but how you implement, deliver, execute,” said Jens Bastian, the Alpha Bank Fellow for Southeast Europe at St. Antony’s College at the University of Oxford. “Verifiable change on the ground in the real economy is what matters.”
Greece has already announced 6.4 billion euros in savings through the end of the year to meet the 2011 deficit target, part of a 78 billion-euro package of state-asset sales and budget measures that threatened to topple Papandreou in June.
Papandreou will today preside over a meeting of his parliamentary group. He said yesterday he had faith in his party and that they supported and believed in the government’s efforts. He ruled out any thought of calling early elections and said speculation Greece would leave the euro wasn’t serious.
Nine in 10 Greeks are dissatisfied with the government and opposition’s handling of the crisis, according to a poll of 1,216 Greeks by researcher Public Issue published in Kathimerini newspaper yesterday.
Opposition New Democracy party’s lead over the governing Pasok party is now four percentage points, with the poll showing neither party would win an outright majority in parliament if elections were held now. The poll was conducted Sept. 2 to Sept. 7 and the margin of error is 2.9 percentage points.