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Greeks face further wage cuts as price of latest bailout

EU officials say planned 15% wage cuts on top of 30% already suffered will not be enough

David Gow in Brussels
guardian.co.uk, Tuesday 21 February 2012 13.31 GMT

Greeks will have to suffer further wage cuts than the 15% planned for the next three years in order to restore their country's competitiveness, senior EU officials have admitted.

The size of the IMF's contribution to the €130bn bailout finally agreed on Tuesday after 14 hours of negotiations has also yet to be decided, while the European commission will only present proposals for "an enhanced and permanent presence" of debt inspectors in Athens later this week.

Repeatedly conceding that their forecasts were subject to high risks, the officials said the Greek economy would contract by 4.5% this year after a fall of 7% last year and would stagnate in 2013 before growth resumed in 2014.

Unemployment, now running at more than 18%, is expected to remain above this level this year and next, be just below 17% in 2014 and remain above 15% in 2015. But wages will have to be depressed even further to reorientate the Greek economy towards exports.

The government of Lucas Papademos, or its elected successor, will also have to find savings equivalent to 5% of GDP by the end of 2014, with officials talking of stepping up the fight against tax evasion.

Greeks have already suffered a 30% cut in wages and can look forward to steep cuts in the minimum wage as well as pensions as the price for securing the latest €130bn bailout which, with €34.4bn rolled over from the original €109bn rescue package, gives €164.4bn available over the next three years.

The sheer scale of the fresh dose of austerity, doubts over the ability of both the Greek government and the eurozone to reach targets and gaps in the eurogroup deal prompted cynics to suggest the agreement would hold together for only a few months. Some non-eurozone diplomats have already begun speculating about when a third package will be required to keep Greece within the euro.

Papademos, who flew to Brussels to help broker the deal, secured significant backing from a large group of private bondholders for the increased 53.5% nominal "haircut". He also won an extra €10bn in the package for the recapitalisation of Greek banks which now see €50bn set aside.

The proceeds from privatisations, already scheduled to raise €50bn, have so far been a paltry €1.6bn from five transactions and the new programme envisages raising €19bn from 35 transactions. But the full proceeds will only be raised if the Greek state sells off huge tracts of land and buildings, the officials conceded.