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.
Public-transit workers unions will hold a second 24-hour strike tomorrow, extending today’s action that shut subway, tram, train, and bus services, to protest cuts in civil servants’ wages and pensions.
The latest round of deficit fighting was demanded by international lenders to ensure Greece reach targets in a 110 billion-euro ($151 billion) bailout and receive a payment due next month.
“The situation is extremely critical and even dangerous because there is a high level of anxiety in the euro area, the European banking system and the world economy,” Greek Finance Minister Evangelos Venizelos told lawmakers in Athens today, according to a transcript provided by the ministry.
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. Meeting international targets and reducing civil-service costs are “a matter of national urgency,” he said.
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.
Measures announced yesterday 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.
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.