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Greece to Pledge 20% Cut in Minimum Wage, Draft Accord Shows

Greece to Pledge 20% Cut in Minimum Wage
A pedestrian passes the headquarters of Greece's central bank in Athens. Photographer: Kostas Tsironis/Bloomberg

Greece will pledge permanent spending cuts, including lower pension payments and a 20 percent reduction in the minimum wage, as the economy contracts this year at a faster pace than originally estimated, according to the draft of a new financing deal with the European Union and International Monetary Fund.

“To restore competitiveness and growth, we will accelerate implementation of deep structural reforms in the labor, product and service markets,” according to the letter of intent addressed to IMF Managing Director Christine Lagarde in a document obtained by Bloomberg News.

The letter, attached to the 43-page Greek-language draft agreement, is to be signed by Prime Minister Lucas Papademos, Finance Minister Evangelos Venizelos and Bank of Greece Governor George Provopoulos. The draft is the focus of a meeting Papademos is having in Athens today to seek approval from the leaders of the three parties supporting his government to secure a 130 billion-euro ($172 billion) rescue plan ahead of an emergency euro-area finance minister meeting in Brussels tomorrow.

While no information was provided about the finance chiefs’ agenda at the meeting tomorrow, the scheduling suggests policy makers, who have to ratify the Greek accord, were optimistic about negotiators reaching an agreement in Athens.

May be Saddled

The draft didn’t provide any details of international financing for Greece, which even after a second bailout may be saddled with too much debt, too little growth and too large a budget hole to do without even more money, which euro nations led by Germany are increasingly reluctant to offer. It also provided no details of a debt-swap which is an integral part of the second financing package for Greece.

Further financing may be needed for the country as the economy contracts at a faster pace than originally estimated. The draft showed a contraction of between 4 percent and 5 percent this year, due in part to a worsening external environment, compared to a forecast of a 3 percent drop in output, contained in a Dec. report on the country by the IMF.

The reforms outlined in the draft, which include trimming state wages, cutting 15,000 public sector employees this year and merging all auxiliary pension funds, will help Greece return to growth in the first half of next year, according to the document.

Rescue Plan

Papademos met late last night with the so-called troika of the European Commission, the European Central Bank and the IMF, to put final touches on the rescue plan before presenting it to the three party leaders.

Greece also repeated pledges to sell stakes in six companies, including Opap SA, Hellenic Petroleum SA, Athens Water & Sewage Co SA and Thessaloniki Water & Sewage Co SA in the first half of this year and issue tenders for ports and airport concessions in the second half, the draft said.

Greece aims to raise at least 50 billion euros by 2017 by selling or renting state assets. So far, Greece has raised only 1.8 billion euros from the assets. Efforts to raise the money have stalled as investors await the outcome of talks over a debt-exchange plan.

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