Last night, the parliament in Greece finally approved an additional fiscal austerity package. MPs voted 199-74 in favour of the cutbacks, despite strong dissent among the two main coalition members.
These new cut-back measures are required in order for Greece to obtain further rescue funds from the EU/IMF. The additional funding is crucial for Greece to avoid a disorderly debt default. On 20 March, Greece has to make a debt repayment of €14.5 billion.
The Eco-Finance meeting will now review the additional austerity measures at their meeting on 15 February. Hopefully the austerity programme will meet the EU/IMF requirements. The vote in Greece last night was seen by many people as essentially a vote to either stay-in or leave the Euro-area.
Below is an outline of the new austerity measures that were agreed last night by the Greek parliament:
Government Spending cuts include:
● €1.1 billion in health spending, mainly by lowering pharmaceutical prices
● €400 million from public investment
● €300 million from defense budget
● €300 million from pension cuts
● €300 million from the central government
● Achieve a core tier-1 capital ratio of 9% by Q3 2012, and 10% by Q2 2013
● Raise capital themselves and/or receiving bailout funds
● Banks will receive state funds in exchange for common voting shares, shares with restricted voting rights or convertible bonds
● Cumulative privatisation should be at least €4.5 billion by end-2012; €7.5 billion by end-2013; €12.2 billion by end-2014 and €15 billion by end-2015
● An initial privatisation target of €50 billion should be achieved "over the medium term”
● Increased powers for Greece's privatisation 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
● Reduce the minimum wage, currently at about €750 gross, by 22%
● For people below the age of 25, the min wage will be cut by 32%
● 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 to be reduced by 5%
● About 15 000 state workers will be placed in a "labor reserve" in 2012, meaning they will receive 60% of their basic wage and dismissed after a year
● One civil servant will be hired for every five retiring, aiming to cut the state sector workforce by about 150 000 people by 2015
● Revise legislation to make sure that a variety of professions is opened up to competition, including primary health care, accountants, tourist guides and real-estate brokers
Fiscal, economic targets:
● For 2012, the primary deficit should not exceed €2.06 billion. For 2013 and 2014 the primary surplus should be at least €3.6 billion and €9.5 billion
● In 2012-2014, the budget deficit must be reduced by 7 percentage points of GDP
● The fiscal targets may be stretched by one year into 2015 if growth is weaker
● The economy is seen shrinking overall by 4% to 5% in 2012 and 2013
● Recovery is expected to begin in 2013, with the economy growing at a pace of 2.5% to 3.0% in each 2014 and 2015
Overall, the Greek economy remains in a desperate state. GDP has declined by more than 10% (real) and can be considered to be in a state of depression, the unemployment rate has risen above 20%, retail sales continue to decline, house prices remain under pressure, the equity market has been decimated, confidence levels have plunged, cash deposits have been plundered, and tax revenue continues to decline year-on-year (VAT collection down 22%y/y in January 2012).
The additional austerity measures are likely to cause further hardship. It is crucial that more and more effort is focused on how to get the Greek economy growing again. Recovery cannot be based on austerity alone!
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