MAY 2, 2010, 7:29 A.M. ET.
Greece Reaches Bailout Deal With EU, IMF .
By NICK SKREKAS, ALKMAN GRANITSAS And COSTAS PARIS
ATHENS— Greece reached a historic deal with other euro-zone countries and the International Monetary Fund for a huge bailout, as the country's prime minister on Sunday exhorted his nation to bear the harsh sacrifices needed to mend broken public finances and vowed that his government won't "allow the country to become bankrupt."
"We have no other choices and no time, so accessing the bailout is inevitable," Prime Minister George Papandreou said in a televised speech at an extraordinary cabinet meeting.
The deal comes as Greece detailed even worse projections for its battered public finances. The country now expects it will take until 2014 to get its government deficit under the European Union's limit of 3% of gross domestic product. It had previously said that could be done by 2012. The deficit was 13.6% of GDP last year.
The EU has prepared a package of direct loans from euro-zone countries—the largest share will come from Germany—and the IMF will also lend under its programs for rescuing troubled countries. The deal is expected to total more than €100 billion ($133.14 billion) over three years, though only the EU has set out its figure—€30 billion, for the first year.
Euro-zone finance ministers are meeting in Brussels Sunday to discuss the aid package and are expected to announce new details. The aid deal has been a political struggle in Europe. A bailout is distinctly against the spirit of the euro zone, which was designed to be a common currency union with purely national fiscal management. The bloc set rules to enforce spending discipline but was unable to make them stick.
Greece's profligacy and the reaction of the capital markets that financed its deficit spending forced the EU's hand. The rapid push to ink a bailout deal comes after a turbulent week in the markets that included a downgrade of Greece's debt—all but forcing Greece to move fast on a bailout and swallow the deep fiscal cuts that will come with it.
Mr. Papandreou said the country has agreed to fresh deficit-cutting measures, which were pushed for by the IMF. They include additional cuts to public-sector wages. He said Greek parliamentarians should set an example and forgo their "13th month" and "14th month" bonuses—many Greek public servants get paid 14 months' salary in a year. Mr. Papandreou said there wouldn't be a forced cutting of private-sector wages.
Last year, Greece's debt topped 115% of GDP—and it is rising. The country's debt is now projected to peak at 140% of GDP in 2014. Greece needs massive cuts in public spending and increases to government revenue to get control of the debt load.
Greece's finance minister, George Papaconstantinou, said the government will freeze public-sector wages, raise sin taxes, increase its value-added tax, impose a new levy on businesses, cut pension payments and raise retirement ages for some public-sector workers. The measures are similar to proposals announced earlier this year, but more drastic.
Word that the long-awaited bailout may finally become reality trickled out on Friday and helped prop up the euro, which rose against the dollar. Greece is desperate for money to pay back a chunk of its giant debt that comes due May 19. Its debt load and its huge budget gap have made capital markets reluctant to lend.
But the new measures needed to secure the bailout are likely to fuel a backlash in Greece, which has for months been hit with strikes and protests by workers who feel they are bearing the brunt of the government's deficit-slimming campaign.
Economists say new taxes and spending cuts will deepen and prolong Greece's recession. That risk was highlighted Friday when Moody's cut the credit ratings of nine Greek banks. "The acute economic strain facing Greece is materially impacting the banking sector's financial condition," the ratings company said.
Although fiscal cuts will help the country improve its balance sheet, "they may come at a cost of depressing economic growth over the short to medium term," which would spur unemployment and saddle the banks with more bad loans, Moody's said.
The Greek government is bracing for a wave of protests as details of the austerity package now signal years of higher taxes and cuts in jobs, wages, welfare and pensions amounting to about 10% of the nation's economic output over the next two years.
In a early sign of unrest, tens of thousands of workers took to the streets Saturday in a larger-than-usual May Day rally, which was later followed by sporadic violence between police and anarchist youth. Another nationwide strike, also sure to feature mass demonstrations, has been set for next Wednesday.
"The fate of the country now fully depends on the acceptance of these tough measures by the people," one cabinet minister said Friday. "You just can't predict how long will it take the public to accept it. Athens has seen violence for smaller issues. There is a lot of anger out there."
Among those who are angry is a generation that lived through Nazi occupation, civil war and a military dictatorship. Kaliopi Margomenou, a 71-year-old former school teacher, is mobilizing her church group to demonstrate outside parliament.
"This country has faced many difficulties, but now for the first time ever I don't feel proud to be Greek," she said. "I am humiliated because we always thought the IMF was for incapable, corrupt countries. That's what we are, incapable and corrupt, at least those who governed us in recent years."
For many Greeks, the news couldn't be worse. "The measures will set of a volcanic eruption in terms of public reaction," said Spyros Papaspyros, president of the ADEDY public-sector civil servants union, which will participate in Wednesday's nationwide walkout. Our income is being further cut, there will be thousands of layoffs and cost of living will increase through the new taxes. Our standard of living will go back 20 years to say the least," Mr. Papaspyros said.
A spokesman for Greek Labor union GSEE said that the measures announced Sunday represent "harshest attack on the labor movement in the country's modern history."
"Banks are being helped but workers are sentenced to misery," said Stathis Anestis. "We will fight back with everything we have starting with the strike on Wednesday."
Greeks still in the workforce face the stark prospect of either being forced out of their jobs or suffering pay cuts.
"Lots of people didn't think these measures would be as harsh--but after hearing late yesterday what is being slated--a lot of them lost their sleep and are now in shock," Marios, a 35-year-old bank employee who asked that his last name not be used, said on Friday. "How is any of this my fault and why should my bonus salaries be cut? I am seriously thinking of going overseas."
Another banker, 59-year-old George Alexiou, is hurrying to retire a year early so as to qualify for his pension after 35 years of employment. He said he is worried that with tough pension reforms coming, that minimum threshold may be raised to 40 years.
"I intended to keep working until the end of the year," said Mr. Alexiou, "but I am afraid new laws will mean lower benefits for me so I am rushing out the door."
The EU has prepared a package of direct loans from euro-zone countries—the largest share will come from Germany—and the IMF will also lend under its programs for rescuing troubled countries. The deal is expected to total more than €100 billion ($133.14 billion) over three years, though only the EU has set out its figure—€30 billion, for the first year.
Euro-zone finance ministers are meeting in Brussels Sunday to discuss the aid package and are expected to announce new details. The aid deal has been a political struggle in Europe. A bailout is distinctly against the spirit of the euro zone, which was designed to be a common currency union with purely national fiscal management. The bloc set rules to enforce spending discipline but was unable to make them stick.
Greece's profligacy and the reaction of the capital markets that financed its deficit spending forced the EU's hand. The rapid push to ink a bailout deal comes after a turbulent week in the markets that included a downgrade of Greece's debt—all but forcing Greece to move fast on a bailout and swallow the deep fiscal cuts that will come with it.
Mr. Papandreou said the country has agreed to fresh deficit-cutting measures, which were pushed for by the IMF. They include additional cuts to public-sector wages. He said Greek parliamentarians should set an example and forgo their "13th month" and "14th month" bonuses—many Greek public servants get paid 14 months' salary in a year. Mr. Papandreou said there wouldn't be a forced cutting of private-sector wages.
Last year, Greece's debt topped 115% of GDP—and it is rising. The country's debt is now projected to peak at 140% of GDP in 2014. Greece needs massive cuts in public spending and increases to government revenue to get control of the debt load.
Greece's finance minister, George Papaconstantinou, said the government will freeze public-sector wages, raise sin taxes, increase its value-added tax, impose a new levy on businesses, cut pension payments and raise retirement ages for some public-sector workers. The measures are similar to proposals announced earlier this year, but more drastic.
Word that the long-awaited bailout may finally become reality trickled out on Friday and helped prop up the euro, which rose against the dollar. Greece is desperate for money to pay back a chunk of its giant debt that comes due May 19. Its debt load and its huge budget gap have made capital markets reluctant to lend.
But the new measures needed to secure the bailout are likely to fuel a backlash in Greece, which has for months been hit with strikes and protests by workers who feel they are bearing the brunt of the government's deficit-slimming campaign.
Economists say new taxes and spending cuts will deepen and prolong Greece's recession. That risk was highlighted Friday when Moody's cut the credit ratings of nine Greek banks. "The acute economic strain facing Greece is materially impacting the banking sector's financial condition," the ratings company said.
Although fiscal cuts will help the country improve its balance sheet, "they may come at a cost of depressing economic growth over the short to medium term," which would spur unemployment and saddle the banks with more bad loans, Moody's said.
The Greek government is bracing for a wave of protests as details of the austerity package now signal years of higher taxes and cuts in jobs, wages, welfare and pensions amounting to about 10% of the nation's economic output over the next two years.
In a early sign of unrest, tens of thousands of workers took to the streets Saturday in a larger-than-usual May Day rally, which was later followed by sporadic violence between police and anarchist youth. Another nationwide strike, also sure to feature mass demonstrations, has been set for next Wednesday.
"The fate of the country now fully depends on the acceptance of these tough measures by the people," one cabinet minister said Friday. "You just can't predict how long will it take the public to accept it. Athens has seen violence for smaller issues. There is a lot of anger out there."
Among those who are angry is a generation that lived through Nazi occupation, civil war and a military dictatorship. Kaliopi Margomenou, a 71-year-old former school teacher, is mobilizing her church group to demonstrate outside parliament.
"This country has faced many difficulties, but now for the first time ever I don't feel proud to be Greek," she said. "I am humiliated because we always thought the IMF was for incapable, corrupt countries. That's what we are, incapable and corrupt, at least those who governed us in recent years."
For many Greeks, the news couldn't be worse. "The measures will set of a volcanic eruption in terms of public reaction," said Spyros Papaspyros, president of the ADEDY public-sector civil servants union, which will participate in Wednesday's nationwide walkout. Our income is being further cut, there will be thousands of layoffs and cost of living will increase through the new taxes. Our standard of living will go back 20 years to say the least," Mr. Papaspyros said.
A spokesman for Greek Labor union GSEE said that the measures announced Sunday represent "harshest attack on the labor movement in the country's modern history."
"Banks are being helped but workers are sentenced to misery," said Stathis Anestis. "We will fight back with everything we have starting with the strike on Wednesday."
Greeks still in the workforce face the stark prospect of either being forced out of their jobs or suffering pay cuts.
"Lots of people didn't think these measures would be as harsh--but after hearing late yesterday what is being slated--a lot of them lost their sleep and are now in shock," Marios, a 35-year-old bank employee who asked that his last name not be used, said on Friday. "How is any of this my fault and why should my bonus salaries be cut? I am seriously thinking of going overseas."
Another banker, 59-year-old George Alexiou, is hurrying to retire a year early so as to qualify for his pension after 35 years of employment. He said he is worried that with tough pension reforms coming, that minimum threshold may be raised to 40 years.
"I intended to keep working until the end of the year," said Mr. Alexiou, "but I am afraid new laws will mean lower benefits for me so I am rushing out the door."
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