Greece Institutes Heavier Budget Cuts to Secure Aid

Greece will accelerate budget cuts per the request of European Union and International Monetary Fund officials in order to receive its next tranche of aid. A host of austerity measures required by Greece’s lenders have failed to ease doubts that the country will be able to avoid default, while deepening the current recession.

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Government employees — from subway, tram, train, bus, and trolley workers to state-school teachers — are holding a 24-hour strike in Athens today, opposing the cuts in pensions and workers’ pay. Even air-traffic controllers will walk out for three hours, disrupting flights to and from the Athens International Airport.

The latest round of cuts, specifically targeting civil servants’ wages and pensioners, were demanded by Greece’s international lenders to ensure that the nation reach its deficit-reduction targets required as part of its 110 billion-euro bailout. Greece needed to prove that it had made adequate progress in reducing its deficit in order to receive its next 8 billion-euro loan payment, due next month.

After two rounds of talks with the EU and IMF, Greece will cut pensions of more than 1,200 euros a month by 20%, cut pensions paid to those younger than 55 by 40% for the amount exceeding 1,000 euros, and will lower wages for 30,000 state employees. Greek creditors are also negotiating a bond exchange intended to decrease the nation’s debt load of about 350 billion euros.

Greece only has enough cash on hand to cover its needs for October, relying on the 8 billion-euro loan payment to see it through to the end of the year. However, austerity measures have so far only deepened the country’s now three-year recession, making it even more difficult for the government to meet the deficit goals laid out by its lenders. The Greek economy is expected to shrink 5.5% this year and another 2.5% next, according to an IMF representative.

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The 2011 deficit, through August, widened 22% to 18.9 billion euros — the target had been 18.1 billion euros. Greece pledged to reduce its deficit to about 7.5% of gross domestic product in 2011, down from 10.5% of GDP in 2010.