Greece unveils more austerity measures

With its cash reserves rapidly running dry, Greece on Wednesday unveiled new austerity measures that include more public sector job cuts and pension reductions to secure vital rescue funds and prevent a debt default.

The measures will result in scores of state organizations shutting down by the end of the year, terminating 30,000 state jobs, said government spokesman Elias Mossialos.

He said all income over $6,800 would be taxed as of 2012 — a lower threshold than the $11,000 introduced earlier this year — and some retirees younger than 55 would face 40% cuts in their pensions beginning in November.

“The message to international markets and our European partners alike is that Greece will abide by its commitments” to fiscal austerity, Mossialos said.

The measures, the latest of a series of budget cuts, followed a seven-hour Cabinet session requested by Finance Minister Evangelos Venizelos to brief his peers on the outcome of negotiations Monday and Tuesday with international debt inspectors.

With the euro under siege and global stocks swooning on fear of a Greek default, Athens has been scrambling for weeks to convince creditors from the European Union, European Commission and International Monetary Fund — collectively known as the troika — that it can meet deficit-reduction targets and live up to reforms promised in return for two multibillion bailouts stitched together since the onset of its financial crisis in 2010.

Delayed reforms, stalled privatizations and gaping budget issues, including a $6-billion increase in state spending in 2011, forced the troika of inspectors to suspend talks in Athens this month. They vowed to return only if Greece made good on promises to bring its budget back in line and pursue a credible fiscal strategy that would shrink the deficit to 6.5% of gross domestic product by 2012.

If international lenders do not unblock rescue funds, Athens will be without enough cash to pay its bills in October, a credit event that would push this small Mediterranean nation to a messy restructuring of its $485-billion debt or an outright default, the first within the 17 nations using the single European currency.

“There can be no disbursement of funds without what the IMF calls proof of prior action,” said Miranda Xafa, a senior investment strategist at IJ Partners and a former International Monetary Fund board member for Greece.

On Wednesday, before the Cabinet meeting, a stern-faced Venizelos explained Greece’s fiscal derailment to Parliament.

“If we did not have the supervision of the troika ... we would have unfortunately slipped off course again,” he said.

Fitch Ratings said in a report this week that it expected the country to default on its debt. Germany, the biggest contributor to Greece’s bailout, was reportedly drafting contingency plans to help shield banks and insurers from losses if Athens defaults.

For nearly two years, Europe has battled to prove it can convincingly deal with Greece’s debt drama, crafting complex rescue packages to keep the country afloat while trying to contain the crisis from spreading to bigger economies, like Spain and Italy.

With recession biting deeper into the Greek economy and the unemployment rate soaring above 16%, the new austerity plan will bring more pain for families and companies already finding it hard to make ends meet.

Public transportation employees plan to kick off strikes Thursday that are expected to culminate in a 24-hour nationwide walkout by civil servants Oct. 5. A general strike two weeks later is also planned.

It remained unclear how many Greeks would join in; spontaneous gatherings and daily demonstrations have faded in this fed up and financially distressed capital.

“They are mad and confused; they feel duped and humiliated,” said Dimitris Mavros, a pollster with MRB Hellas in Athens. “But, Greeks now sense the real danger of default. They know, that in this chapter of the Greek drama, the dragon turns real.”

Carassava is a special correspondent.