October 23, 2013 / 5:50 PM / 4 years ago

Greece rejects wage, pension cuts to fill budget gap

Protesters shout slogans during a rally by high school teachers who oppose job cuts in their sector in Athens October 23, 2013. REUTERS/Yorgos Karahalis

ATHENS (Reuters) - Greece ruled out on Wednesday any fresh wage or pension cuts to comply with demands from its international lenders for additional budget savings next year that risk deepening the country’s social crisis.

The move may further strain relations between Athens and its lenders, whose inspectors are due to return on November 4 to resume an audit of the debt-laden country’s finances.

A growing economy is the only way to viably reduce Greece’s debts and deficit, Greece’s fragile coalition government said in an updated policy agreement, rejecting fresh austerity measures on top of those already agreed.

“Greece can convincingly argue that it can’t and shouldn’t take new fiscal measures curtailing wages and pensions,” said the document released after a meeting between Prime Minister Antonis Samaras and his coalition partner Evangelos Venizelos, chief of the Socialist PASOK party.

Greece has been on an EU/IMF lifeline since 2010, with loans granted in exchange for spending cuts and reforms. But austerity fatigue has set in after a six-year recession that has wiped out 40 percent of household disposable incomes and sent joblessness soaring to 27.6 percent.

Athens is at odds with international creditors over the size of its expected budget shortfall next year.

The government hopes tax revenues from economic recovery and a better crackdown on tax evasion will help it achieve a budget surplus before interest payments of 2.84 billion euros, or 1.6 percent of gross domestic product (GDP), next year, beating a bailout target of 1.5 percent of GDP.

But lenders expect Athens to miss that goal by about 2 billion euros, unless it adopts further measures, a senior Greek finance ministry official told reporters earlier on Wednesday.

A protester shouts slogans during a rally by highschool teachers who oppose job cuts in their sector in Athens October 23, 2013. REUTERS/Yorgos Karahalis

Finance Minister Yannis Stournaras on Saturday rejected any new tax increases and across-the-board wage or pension cuts, saying there was instead scope for “targeted” spending cuts and “structural measures” to plug any fiscal gaps.

The so-called troika of the EU, the IMF and the ECB has not said so far what kind of measures it wants Athens to adopt.

Athens argues that lenders should cut it some slack after it delivered the biggest deficit reduction ever recorded in the euro area, with the budget gap expected to fall to 2.4 percent of GDP in 2013 from 15.8 percent in 2009.

Greece and the troika are also at loggerheads over how to cover the country’s funding shortfall, currently estimated at nearly 11 billion euros over 2014-2015.

The ECB has rejected a Greek call to help it plug the funding gap by rolling over some of the 40 billion euros of Greek bonds that it holds when they mature next year.

The ECB’s refusal, Greece’s failure to meet agreed privatization targets and the country’s deeper-than-expected recession means that Athens might need a small, third bailout and additional debt relief next year to keep its debt viable.

Greece has already obtained 216 billion euros of rescue loans from the EU and the IMF.

On top of that, private bondholders and governments have reduced the volume of its debt by almost 170 billion euros through measures such as cutting the nominal value of its bonds and softening the terms of its rescue loans.

Greece’s public debt stands at about 320 billion euros, or a towering 175 percent of its GDP. The troika hold almost 80 percent of that debt.

Writing by Harry Papachristou; editing by Tom Pfeiffer

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