FRANKFURT — Greek leaders struggled through the weekend to agree to a set of radical budget reductions that would satisfy foreign lenders’ demands even as they tried to stave off mounting resistance to those cuts at home.
Reflecting the urgency of the situation, the prime minister of Greece, George A. Papandreou, canceled a planned trip to Washington this week and held talks with his cabinet on Sunday.
The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt. Over the weekend, European finance ministers issued stern warnings at a meeting in Poland that failure to meet financial targets would imperil the release of the payment.
The payment is just one installment in a larger package of 110 billion euros, or $152.6 billion, in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, or $150.2 billion, was agreed to in July, though that has yet to be ratified.
To reach the financial targets, Greek leaders discussed a range of draconian layoffs and pay reductions among public sector workers. While these measures have long been planned, but never carried out, to the frustration of foreign lenders, the discussion of these cuts represented a marked change in approach for the Greek government, with the emphasis on reductions over revenue increases.
“Everyone wants a smaller state,” the finance minister, Evangelos Venizelos, said on Sunday.
After the meeting, the Greek government reaffirmed its commitment to hit budget targets for 2011 and 2012, to avoid generating new debt and to revamp the dysfunctional economy. The measures are “in order to avoid bankruptcy and remain in the euro zone but also to stop the country being blackmailed and humiliated,” Mr. Venizelos said.
Mr. Venizelos also appealed to Greeks to take responsibility for the challenges they face.
“What is being disputed on a global level is not the ability of the government but the ability of the country to do what is necessary,” he said, in an apparent reference to strong labor union resistance to reforms and persistent tax evasion.
More specifically, Greece officials are being pressed to put thousands of civil servants deemed to be “surplus” on a standby status at a reduced wage. The government has not yet pushed ahead with this measure, which is very unpopular in a country where nearly one million people out of a population of 11 million work for the government.
Several Greek news media outlets, including the influential center-left newspaper To Vima, on Sunday cited an internal government e-mail that set out priorities by Greece’s foreign creditors aimed at raising much-needed revenue quickly. These include cuts in the pensions of Greek sailors and employees of the state telecommunication company OTE, the immediate merger or abolition of 65 state agencies and the freezing of state workers’ pensions through 2015.
Adding to the Greeks’ dilemma is that the proposed cuts come as the Greek economy is contracting faster than expected. Last week, Mr. Venizelos warned that the economy would shrink much more sharply this year than anticipated — by 5.3 percent instead of the 3.8 percent originally forecast in May. The budget deficit is on track to reach 8.2 percent of gross domestic product this year, well ahead of the original estimate of 7.4 percent.
The original aid package requires Greece to reduce its deficit to 7.5 percent of gross domestic product this year, and below 3 percent by 2014, according to the International Monetary Fund.
The reduced number of workers employed in the public sector would only add to the difficulty of meeting these targets as payroll tax collections shrink.
Despite the dire circumstances, Mr. Venizelos denied rampant speculation that the country was on the brink of default.
Acknowledging that the mood in both Greece and the euro zone is “fluid and nervous,” he said the country was committed to taming its widening budget deficit and carrying out reforms, one of which is a new levy intended to ensure that property owners pay taxes.
Mr. Venizelos also lashed out at “those intent on speculating against the euro and carrying out organized attacks on the heart of the euro zone.”
Greece, he said, risks “becoming a scapegoat and an easy alibi for institutions that are unable to curb the crisis and to respond to attacks on the euro.”
On Monday, Mr. Venizelos will have a chance to make his country’s case in a conference call with representatives of the foreign lenders known as the troika: the European Commission, the European Central Bank and the International Monetary Fund.
Jack Ewing reported from Frankfurt, and Niki Kitsantonis from Athens. Stephen Castle contributed from Wroclaw, Poland.
Article source: http://www.nytimes.com/2011/09/19/business/global/19iht-euro19.html?partner=rss&emc=rss
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