Greece Seeks to Avoid 'Humiliation' with More Cuts

September 19, 2011 - 11:45 AM
Greece Financial Crisis

IMF representative Bob Traa speaks during a conference in Athens, Monday, Sept. 19, 2011. Greece's finance minister promised Monday to stick with his plan for the country to post a primary surplus in 2012, hours before he was to hold an emergency teleconference with debt inspectors. (AP Photo/Petros Giannakouris)

VOULIAGMENI, Greece (AP) — Greece will try to avoid international "blackmail and humiliation" by speeding up reforms and civil-service staff cuts, the finance minister said Monday, hours before holding an emergency teleconference with creditors.

Greece's international bailout creditors stepped up the pressure at the start of a crucial week in the nearly two-year debt crisis, urging the government to do more to heal its finances. Global markets were skeptical, however, and stocks fell sharply on fears Athens will default on its mountain of debt.

Out of patience with the Socialist government's delays on promised reforms, Greece's partners and creditors are threatening to cut the cash lifeline without which the country would go bankrupt in less than a month.

Athens is struggling with a deepening recession that is eating away at the impact of its austerity measures while also causing unemployment and public anger to grow.

International debt inspectors will talk to finance chief Evangelos Venizelos around 1600 GMT.

"We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," said Amadeu Altafaj Tardio, a spokesman for the European Commission.

Initially, Athens said the teleconference would be followed by a ministerial meeting under Prime Minister George Papandreou, who canceled a scheduled trip to the U.S. on Saturday. But government spokesman Elias Mossialos later said in an interview with Real FM radio that the meeting could be moved to another day depending on the course of separate talks between Venizelos and his fellow ministers.

Ahead of the discussions, Venizelos said the government still seeks to generate euro3 billion ($4.1 billion) more revenues next year than it spends, before counting the cost of interest on existing debts.

Greece's economy is expected to contract by about 5.5 percent this year — more than the 3.5 percent earlier assumed — and a further 2.5 percent in 2012, according to new government and IMF estimates.

"The country cannot go forward without the true implementation of major structural reforms — we have delayed them," Venizelos said at a conference south of Athens, adding that achieving the 2012 target was vital.

The government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 percent of gross domestic product.

When it became obvious earlier this month that there was a more than euro2 billion ($2.75 billion) shortfall in the budget, Greece's creditors threatened to withhold the sixth installment of a euro110 billion rescue package agreed upon in May 2010.

Without the installment, worth euro8 billion, Greece faces defaulting on its debts by mid-October.

A review by officials from the International Monetary Fund, the European Central Bank and the European Commission, collectively known as the 'troika,' was suspended earlier this month amid talk of missed targets.

The government hurriedly announced an extra two-year property tax — payable through electricity bills to ensure its collection — to compensate for the shortfall.

But the news was greeted with an outcry from a public already reeling from salary cuts and the recession. State electricity company unionists also threatened to refuse to collect the taxes, and to prevent those who don't pay having their power supply cut off.

Yiannis Panagopoulos, head of Greece's largest trade union, GSEE, said further revenue-boosting levies would be "unfair and imbalanced."

"Our country has recently been undergoing a weekend nightmare: every weekend there is the threat of bankruptcy, whispers of a coming bankruptcy, we hear again and again that everything is about to collapse," he said. "What our creditors are asking of the country is unthinkable. ... A country is its people, and above all it is they that must be saved."

A Communist labor union has called a protest against the tax outside parliament Wednesday.

Venizelos said Sunday night that the backlash led to skepticism among Greece's creditors about whether the government would manage to raise the projected revenue.

While technical staff from the troika have been back in Athens for about a week, trying to figure out whether the recently announced measures will be enough to meet the targets, senior debt inspectors have stayed away until progress is made.

Altafaj Tardio said that, depending on what Venizelos says at the teleconference, the troika "will decide on the resumption of the review mission."

IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes, arguing that Athens should give up the "taboo" of firing public servants.

"I have compared Greece to a Mercedes that can go 120 kilometers per hour but is only going 40 because it has so much sludge in the engine," Traa told the conference.

He said Greece needed to speed up its reforms in tax collection and reducing the size of the overmanned public sector.

In an interview, Traa said Greece needed to implement key commitments including plans to slash 150,000 public sector positions by 2015.

"If you can do it (staff cuts) up front, you get over it much more quickly. Whether society can support that is a different issue," Traa told the AP. "Our experience is that ... if you do things gradually that may induce the public getting very tired. Adjustment fatigue is something that happens in every country."

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Elena Becatoros and Nicholas Paphitis in Athens, Theodora Tongas in Vouliagmeni, and Gabriele Steinhauser in Brussels contributed.