NEWS

Greece set to adopt 9bln euros in austerity measures next year

Greece is likely to adopt austerity measures worth 9 billion euros next year, rather than the 7.8 billion euros it had planned for in the 2013 budget, it has emerged.

Following talks between Finance Ministry officials and the troika on Thursday, it emerged that the Greek side was prepared to agree to its lenders demands for more cuts to be made next year.

The total package for 2013 and 2014 is worth 13.5 billion euros in spending reductions and tax hikes. The mix of the measures in the package is likely to be 11.5 billion euros in spending cuts and 2 billion euros in tax increases.

Almost 5 billion euros of the cuts next year will come from pensions, which is likely to mean larger reductions for pensioners who earn more than 1,000 euros a month than had originally been planned.

About 1.7 billion euros will be cut from civil servants salaries, rather than the planed 1.4 billion. Welfare payments will be slashed by 1.2 billion euros.

The measures will include an increase in the retirement age from 65 to 67.

Sources said the troika backed down on its opposition to Greek banks paying the state 555 million euros in dividends following a capital injection in 2008.

The troika, however, has asked the government to prepare more measures for 2015 and 2016 should the eurozone be willing to grant Athens a two-year extension to its fiscal adjustment period.

Sources said that the government estimates that there will be a hole of up to 12 billion euros in its budget due to extending the 13.5-billion-euro austerity package demanded by the troika over four years rather than two.

However, shortfalls in the privatization program, a possible need for more capital for Greek banks, a deeper-than-expected recession and any deviation from the budget could take the amount needed to cover the gap to 25 billion euros, according to Finance Ministry estimates.

The government sees six ways in which this gap can be covered: for the European Central bank and eurozone central banks to return to Athens the profit they will make on Greek bonds bought on the secondary market; a reduction in the interest rates on the bilateral loans agreed as part of the first bailout; an extension to the maturities of Greek bonds the ECB holds in its investment portfolio (about 10 billion euros; of which 6.5 billion is due in 2016); rolling over the debts the state owes itself (such as a 5.2-billion-euro loan from the Bank of Greece); the sale or renting out of public property (which could raise 1 to 2 billion euros) and an increase in the issuance of T-bills by 9 billion euros.

Online