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19Feb12

Greek austerity and reform measures

Greece's cabinet approved late on Saturday 325 million euros ($428 million) of extra austerity measures needed to complete a 3.3 billion euro package of cuts -- the price demanded from Athens for a new EU/IMF bailout.

Below are the main measures, some of which may need new legislation. The information comes from statements by Prime Minister Lucas Papademos, the text of hundreds of pages of legislation posted in Greek and English on the parliament's web site, and government sources. (For web links see bottom of story)

Fiscal Adjustment

  • Before any funds are disbursed under the bailout in March, the government must pass a supplementary budget including spending cuts worth 1.5 percent of gross domestic product this year, or 3.3 billion euros ($4.37 billion).

  • A first breakdown of the cuts, issued this month, stated that 1.1 billion euros would come from health spending, mainly by lowering pharmaceuticals prices; 400 million euros from public investment; 300 million euros from the defense budget; 300 million from pension cuts and 300 million from the central government. Some 325 million euros of cuts were put aside to be detailed later, with the remainder to come from a series of smaller measures to reduce ministry operating expenses.

  • While the final package of measures worth 325 million euros still needs to be officially specified, two government sources told Reuters on Feb 16 that 100 million euros would come from further defense cuts. An extra 90 million will be collected by bringing forward public sector wage reductions and another 135 million from the health, labor and interior ministries, the sources said. Prime Minister Lucas Papademos said on February 18 more cuts to pensions were unavoidable but said only the portion above a monthly threshold of 1,300 euros would be affected.

  • In June, the government then in charge following possible elections penciled for April will have to specify additional austerity measures worth 10 billion euros for 2013-2015.

Bank Recapitalisations

  • All banks will be required to achieve a core tier-1 capital ratio of 9 percent by the third quarter of 2012 and of 10 percent in the second quarter of 2013, by raising capital themselves and/or receiving bailout funds.

  • Depending on the degree of state help they will need, banks will receive state funds in exchange for common voting shares, shares with restricted voting rights or convertible bonds.

Privatisations

  • Cumulative privatization receipts since June 2011 should be at least 4.5 billion euros by end-2012, 7.5 billion by end-2013, 12.2 billion by end-2014 and 15 billion by end-2015. An initial privatization target of 50 billion euros should be achieved "over the medium term."

  • There will be increased powers for Greece's privatization agency to sell an asset in pieces, or liquidate it if it cannot be sold in its current form.

  • The list of companies whose full or partial privatization will be launched in 2012 includes gas company DEPA, gas grid operator DESFA and refiner Hellenic Petroleum.

Labour Reform

  • Before any bailout funds are disbursed, Greece must pass legislation to reduce the monthly minimum wage, currently at about 750 euros gross, by 22 percent. For people below the age of 25, it will be cut by 32 percent; automatic wage increases based on seniority will be scrapped; collective wage agreements will be allowed to adapt "to changing economic conditions on a frequent and regular basis"; social security contributions are to be reduced by 5 percent.

  • About 15,000 state workers will be placed in a "labor reserve" in 2012, meaning they will receive 60 percent of their basic wage and dismissed after a year; one civil servant will be hired for every five retiring, with the aim of cutting the state sector workforce by about 150,000 people by 2015.

Structural Reforms

  • Before receiving any funds, Greece must revise legislation to make sure that a variety of professions are opened up to competition, including primary health care, stevedores, accountants, tourist guides and real-estate brokers.

Fiscal, Economic Targets

  • For 2012, the annual general government primary deficit should not exceed 2.06 billion euros. For 2013 and 2014 the primary surplus should be at least 3.6 billion euros and 9.5 billion euros respectively. The figures above are subject to change.

  • In 2012-2014, the general government budget deficit must be reduced by 7 percentage points from a 2011 level which Athens forecasts at between 9.1 and 9.4 percent of GDP. The fiscal targets may be stretched by one year into 2015 if economic growth is weaker than expected.

  • The economy is seen shrinking overall by 4-5 percent in 2012 and 2013. Recovery is expected to begin in 2013, with the economy growing at a pace of 2.5-3 percent in each of 2014 and 2015.

Debt-Swap Deal

The bill lays out the legal groundwork for the EU's EFSF rescue fund and the European Central Bank to facilitate a planned debt swap deal.

  • A 35-billion euro "ECB Credit Enhancement Facility Agreement" will enable Greece to finance a repurchase agreement whereby the ECB, acting on Greece's behalf, would offer to buy back some Greek government bonds held by euro zone central banks.

  • The European Financial Stability Facility will make 30 billion euros available as a sweetener for the debt swap.
[Source: By Harry Papachristou, Reuters, Athens, 19Feb12]
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