Greece to ramp up austerity measures to secure payment

GREEK Prime Minister George Papandreou’s government has said it will accelerate budget cuts, targeting civil servants’ wages and pensioners to keep emergency loans flowing and avoid default.

Measures announced late yesterday following two rounds of talks with the European Union and the International Monetary Fund include: a 20% cut in pensions of more than €1,200 a month,according to a government statement; pensions paid to those younger than 55 will be shaved by 40% for the amount exceeding €1,000 and wages will be lowered for 30,000 state employees.

The policies were demanded by international lenders to ensure that Greece reaches deficit-reduction targets in a €110 billion bailout and receives a payment due next month.

“The risk is that the system, the financial sector and the real economy, stop functioning” without the infusion, said Finance Minister Evangelos Venizelos.

European leaders are squabbling over the terms of a July 21 agreement for a second Greek rescue and the prospect that they will be forced to channel more money to keep Greece in the eurozone.

Greek subway, tram, train, bus and trolley workers and state school teachers will hold a 24-hour strike in Athens today to oppose government plans to reduce the size of its public sector, according to a spokeswoman at the Greek Transit Workers Union press office.

Flights into and out of Athens International Airport will be disrupted as air traffic controllers walk out for three hours.

Greek bonds fell yesterday, sending the yield on two-year notes up 232 basis points to 66.5%.

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.

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 the economy will shrink 5.5% this year and another 2.5% next year.

Preliminary numbers showed the 2011 deficit through August widened 22% to €18.9bn, more than the target of €18.1bn for the period. Greece pledged to reduce its deficit to about 7.5% of gross domestic product this year from 10.5% in 2010.