Greek cabinet discusses public sector cuts

September 15, 2011 - 6:10 AM
APTOPIX Greece Financial Crisis

Greek Prime Minister George Papandreou laughs during a ceremony at the presidential palace in Athens, Wednesday, Sept. 14, 2011. The leaders of Greece, France and Germany will seek ways to contain the spiraling debt crisis and prevent it from further roiling global financial markets in a teleconference on Wednesday evening. (AP Photo/Thanassis Stavrakis)

ATHENS, Greece (AP) — After a turbulent week of market fears about a possible Greek default, Greece's cabinet on Thursday discussed the latest round of austerity measures designed to ensure the country continues to receive international rescue loans.

The meeting came a day after the leaders of Germany, France and Greece insisted in an emergency teleconference that Greece remains an "integral" part of the eurozone, but stressed the country must meet its reform pledges.

The outcome of the talks between German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou calmed markets after days of turmoil sparked by fears Greece was heading rapidly for a catastrophic default or was leaving the euro.

Stock markets in Europe were all higher in morning trading, while the euro pushed back up towards the $1.38 mark. But concern about Greece's future continued.

"We are still in a scenario where Greece is facing immense difficulties and the markets feel Greece's debt can't be resolved," said Benoit de Broissia, an analyst at KBL Richelieu in Paris.

"So markets are still speculating on Greece's bankruptcy although short-term the 'troika' is expected to release funds for Greece," he said, referring to the name for Greece's debt inspectors: the International Monetary Fund, European Central Bank and European Commission.

The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also affect banks, many of which are large holders of Greek government bonds. Moody's on Wednesday downgraded the credit ratings of two French banks.

Greece relies on funds from its bailout loans from other eurozone countries and the IMF, but that money depends on Greece meeting debt reduction targets and passing quarterly reviews.

On the table in Thursday's cabinet meeting was restructuring public television, merging state entities and toughening the civil service disciplinary code. Public television and radio workers planned a four-hour work stoppage and a demonstration outside parliament to protest plans to shut down a state television channel.

The eurozone's finance ministers are to discuss the measures Friday at a meeting in Poland also attended by U.S. Treasury chief Timothy Geithner.

The troika suspended its review of Greece's reforms earlier this month, and is due back in Athens in the coming days to complete its recommendation as to whether the country should receive the next batch of bailout loans, worth euro8 billion ($11 billion). Without it, Greece only has enough cash to see it through mid-October.

After the review's suspension, the government announced it would impose an additional tax on all property owners. The Finance Ministry said late Wednesday the new tax would be on a sliding scale according to neighborhood and the age of the building.

"The ball in now in the Greek court," EU economic and monetary affairs commissioner Olli Rehn said in Brussels. "Over the last weekend the Greek government took very important decisions that go a long way towards meeting the fiscal target for this year."

Rehn said the review mission should conclude work by the end of September, "again on the condition that Greece will meet all the conditions."

In Frankfurt, Merkel stressed that it was "worth every effort to solve our central problem today — the debt crisis of individual euro countries."

"The euro is far more than a currency — it is a symbol of our common economic success and it is a symbol of our European unity," she said in a speech opening the Frankfurt Auto Show.

"The euro provides for economic growth, it provides for jobs and so for prosperity in Germany," Merkel said. "So it is completely clear that Germany — in our own deepest interest, and at the same time as Europe's biggest economy — has a duty and responsibility to make its contribution to securing the euro's future and strengthening Europe."

Merkel said turning the 17-nation eurozone into a stable union "won't happen overnight or with any one-time thunderbolt — it will only work in a controlled process of steps that follow on from each other."

Greece's international creditors have become increasingly frustrated with the slow pace of reforms and Athens' failure to meet some of its fiscal targets. Although the Socialist government has passed several rounds of austerity measures, including cutting public sector pay and pensions and increasing taxes, it has struggled to meet revenue targets.Athens has blamed a deeper recession than originally predicted, with the economy forecast to contract by more than 5 percent this year, instead of the earlier expected 3.8 percent.

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Angela Charlton in Paris, Geir Moulson in Berlin and Raf Casert in Brussels contributed.