Greece approves cuts of €6.6bn

GREECE last night approved €6.6 billion worth of austerity measures 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% of Gross Domestic Product (GDP) or €14.7bn, from 8.5% of GDP this year, the Finance Ministry said.

That compares with 6.5% under agreements with the EU, International Monetary Fund (IMF) and European Central Bank (ECB) — 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.

EU leaders on July 21 agreed on a second aid package to cover the financing gap following a €110bn bailout last year.

The economy is forecast to shrink 5.5% this year, more than the 3.8% 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 Greekdefault, 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.

The meeting was due to coincide with the payout of the sixth installment of Greece’s original rescue.

That €8bn disbursement has been put off until later this month as the troika gave Papandreou more time to close the deficit gap.

He announced last night that a special meeting of euro region finance ministers would take place on October 13 to hear the results of the troika’s review.

Details of the austerity measures were announced after a cabinet meeting yesterday which approved the 2012 budget and the plan to dismiss state workers.

More than 30,000 public workers will be put on reduced pay and either retire early or eventually be fired in a bid to cut the government wage bill by €300 million in 2012.

The budget, which was agreed to with troika inspectors, foresees a primary surplus of €3.2bn next year, or 1.5% of GDP. Inspectors from the troika returned to Athens on September 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 September 1, Finance Minister Evangelos Venizelos introduced a series of measures to plug the budget gap for 2011, including a new property tax and cuts to pensions and wages.