Bloomberg News

Greece Approves $8.8 Billion in Austerity to Meet Targets

October 02, 2011

(Click on EXT4 for more on Europe’s debt crisis.)

Oct. 2 (Bloomberg) -- Greece approved 6.6 billion euros ($8.8 billion) of austerity measures for this year and in 2012, including firing state workers, to meet revised deficit targets and satisfy the terms of a European Union-led rescue.

The measures will help reduce the budget deficit to 6.8 percent of gross domestic product, or 14.7 billion euros, from 8.5 percent of GDP this year, the Athens-based Finance Ministry said in an e-mail statement today. That compares with 6.5 percent under agreements with the EU, International Monetary Fund and European Central Bank, the so-called troika, to secure the emergency loans needed to prevent a default.

Prime Minister George Papandreou’s efforts to reduce the budget shortfall have been hurt by the country’s deepening recession that has left revenue falling short of targets. European Union leaders on July 21 agreed on a second aid package to cover the financing gap following a 110 billion-euro bailout last year.

The economy is forecast to shrink 5.5 percent this year, more than the 3.8 percent forecast by the EU and IMF in June, according to the statement.

Greece announced the measures on the eve of a meeting of European finance ministers who gather in Luxembourg to weigh the threat of a Greek default, grapple with how to shield banks from the fallout and consider a further boost to the region’s rescue that will provide Greece’s second bailout.

Payout Pending

The meeting was due to coincide with the payout of the sixth installment of Greece’s original rescue. That 8 billion euro disbursement has been put off until later in October as the troika gave Papandreou more time to close the deficit gap. Papandreou announced tonight that a special meeting of euro region finance ministers would take place on Oct. 13 to hear the results of the troika’s review.

Details of the austerity measures were announced after a cabinet meeting today which approved the 2012 budget and the plan to dismiss state workers. The government by December will identify 30,000 public workers who will be put on reduced pay and either retire early or eventually be fired. The plan aims to cut the government wage bill by 300 million euros in 2012.

The budget, which was agreed to with troika inspectors, foresees a primary surplus of 3.2 billion euros next year, or 1.5 percent of GDP, according to the statement.

Troika Returns

Inspectors from the troika returned to Athens on Sept. 29 to resume a quarterly review of the country’s performance in meeting the conditions of the original bailout. They suspended the inspection weeks earlier after finding that the government was failing to implement measures agreed to in exchange for continued aid.

After the troika halted the review on Sept. 1, Finance Minister Evangelos Venizelos introduced a series of measures to plug the budget gap for 2011, including a new property tax approved by parliament on Sept. 27 and further cuts to pensions and wages for state workers.

--With assistance from Natalie Weeks in Athens. Editors: Andrew Davis, Fergal O’Brien

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

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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