Bloomberg News

Greece Pledges to Accelerate Austerity Before Bailout Payment

September 06, 2011

(See {EXT4 <GO>} for more on the sovereign-debt crisis.)

Sept. 6 (Bloomberg) -- Greece said it will accelerate austerity measures pledged in return for international financing as pressure mounted from European partners before the payment of a sixth tranche of bailout loans.

“Greece isn’t a pariah in the European Union or an open wound,” Finance Minister Evangelos Venizelos said from Athens on state-run NET Radio today. “Greece is an equal member of the European Union with deficit and debt problems. Greece can overcome these problems with these reforms.”

Venizelos said he received approval from the Cabinet today to immediately transfer state assets to a special fund for sale, place civil servants in a “reserve” system to retrain them and cut expenses, as well as merge and shut down dozens of government agencies that are a drag on spending.

German Finance Minister Wolfgang Schaeuble said Greece won’t get its next bailout installment unless it meets goals under the aid package. He was the latest official from an EU nation to warn the country after a scheduled quarterly review of Greece’s progress by the EU and the International Monetary Fund was unexpectedly suspended for 10 days.

Spending cuts are “unavoidable” for indebted euro-area members, Schaeuble said in a speech to Parliament in Berlin.

Yields Soar

The yield on two-year Greek notes rose above 52 percent today as Greece’s economic predicament, a wavering commitment to budget cuts in Italy and mounting borrowing costs for European banks underscore investor concern that efforts by euro-area officials to contain the debt crisis are unraveling.

Venizelos expects the economy to shrink by about 5 percent this year, worse than the June estimate of 3.8 percent from the EU and IMF, and a deeper contraction than in the past two years. The forecast damps hopes that Greece will lower its deficit to 7.5 percent of gross domestic product in 2011, with the government blaming the slump for a budget deficit that widened 25 percent in the first seven months of the year.

“The deeper recession, a recession for a third straight year, automatically changes the fiscal target,” said Venizelos. “The issue isn’t to get into a discussion about numbers; the issue is to send a message to our partners, to Greek citizens and to the international media that we understand the situation.”

Greece is aiming at an additional 6.4 billion euros ($9 billion) 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 Prime Minister George Papandreou’s government in June.

A system to place civil servants “in reserve” would lead to more savings than originally projected in this year’s budget, Venizelos said. He promised to consider cutting tax rates once the country developed a fail-safe collection mechanism that would stem revenue losses through evasion.

GDP fell 6.9 percent from a year earlier in the second quarter on a non-seasonally adjusted basis, after declining 8.1 percent on an annual basis in the three months through March. The Hellenic Statistical Authority didn’t provide a seasonally adjusted figure.

--With assistance from Christos Ziotis in Athens. Editors: Jeffrey Donovan, Fergal O’Brien

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net;

To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net;


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