Athens set to accept reform for €45bn
By Kerin Hope in Athens
Published: April 26 2010 19:02 | Last updated: April 26 2010 19:02
Greece will this week agree to adopt painful reforms, cutting thousands of public sector jobs and reducing pensions in return for a €45bn ($60bn, £40bn) loan from its eurozone partners and the International Monetary Fund.
A three-year programme being drawn up by visiting officials from the fund, the European Commission and the European Central Bank will include fiscal and structural reforms aimed at slashing the budget deficit by 6 percentage points of gross domestic product in 2011 and 2012.
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“It’s a make-or-break situation. If the money isn’t on the table by the beginning of May, Greece will be in a desperate situation ... It can’t borrow any longer on the capital markets,” said an Athens-based economist.
The government is under pressure to raise value-added tax for a second time this year and accelerate its campaign against tax evasion to meet revenue targets. It will present plans this week to merge or shut more than 70 state organisations and transfer staff to other public sector jobs.
But the European Union and IMF teams are expected to call for more stringent measures including the abolition of short-term contracts at public sector organisations and closure of up to 3,000 bodies controlled by central and local government.
George Papaconstantinou, finance minister, on Monday tried to calm public opinion, saying: “It’s a mistake to think that the IMF is coming here to impose harsher conditions than those we’re discussing with our European partners.”
“It’s a joint approach ... Greece must drastically cut its deficits, control its debt and make the structural reforms needed so that we have a competitive economy,” Mr Papaconstantinou said.
The new measures could plunge Greece deeper into recession, amid further government spending cuts and a freeze on private sector investment, economists said. The economy is projected to shrink this year by 2.5 per cent, and by another 1.1 per cent in 2011, according to IOBE, a private sector think-tank.
However, measures to liberalise the labour market and open up dozens of closed-shop professions – also included in the programme – could help kick-start growth in 2012, ending three years of recession.
The programme will include the lifting of restrictions on part-time work, on firing private sector workers and on collective wage bargaining. Cuts in Christmas and Easter bonuses, already applied to the public sector, are under scrutiny. “The burden of the measures will fall on the public sector ... But there’s resilience in the private sector, and liberalisation of markets will create opportunities and jobs,” said Yannis Stournaras, IOBE’s director.
The EU-IMF mission is insisting on a more radical overhaul of the under-funded state pension system before it is presented to parliament next month, including cuts in pensions for both public sector and self-employed workers.
The programme, due to be completed by early next week, will be rigorously supervised to prevent a repetition of delays that have undermined previous re-form efforts.
Fund officials have voiced concern over the country’s administrative weakness, which, if uncorrected, could affect both revenue collection and the streamlining of the public sector. But Greece’s creditors will be impatient for results.
“Even after the IMF programme is launched, Germany will be unforgiving – demanding of the IMF a very tough stance in monitoring its implementation,” said Marco Annunziata, economist at HVB-UniCredit Group.
