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Creditors rejected half of the Greek proposals

10 September 2012 / 14:09:36  GRReporter
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Half of the Greek fiscal consolidation programme is questionable. The heads of the mission of international creditors approved measures amounting to six billion euro of the two-year programme that has to save the budget 11.5 billion euro. According to sources close to the Ministry of Finance, the Troika did not approve measures amounting to 2.5 billion euro and insisted on a more detailed explanation of where the cuts of around three billion euro would come from.

The representatives of the International Monetary Fund, European Central Bank and European Commission did not approve the reductions in drug costs. The measure amounts to 800 million euro and according to the creditors, the cost of medicines had been so drastically reduced in the last two years that additional cuts seemed unfeasible.

Creditors did not approve the reduction of the public investment programme amounting to 300 million either. In their opinion, the decline in investment in the fifth year of recession is more than counter-productive and they have required that the Ministry of Finance find another way to save the desired amount.

As part of the fiscal consolidation, the government stated it was willing to delay the payments of the cost of military equipment worth 437 billion euro to 2015 onwards. The supervisory Troika has refused to accept this as a recovery measure, because the goal of the programme is to reduce costs in the long run instead of deferring payments to a later period.

Paul Thomsen, Claus Masuch and Matthias Morse assessed the savings of 375 million euro from the introduction of an electronic system to manage the supplies in the public sector as well as the saving of 150 million euro from the education sector as unrealistic. The biggest problem therefore remains the cost of salaries of public workers.

According to the plan the Greek state has recently drawn, the budget has to save 167 million euro by putting the labour reserve into function – public workers, who will be dismissed but will receive 60% of their salary for the next three years. If the public sector needs personnel, they will be the first on the list of appointments. If they are not called back to work after three years, they will be officially unemployed.

This plan for the public sector "unburdening" had been agreed with the Troika during the government of Lucas Papademos. Earlier this year, Greece pledged to dismiss more than 15,000 public workers by the end of 2012. It turned out over time that about 35,000 people should be dismissed by the end of 2012 but not a single government official has entered the labour reserve so far. The ultimate goal remains 150,000 public workers less by the end of 2015.

So far, direct layoffs in the Greek public sector have been avoided. State departments were trying to indirectly reduce the number of public workers. They resorted most often to early retirement or various incentives for leaving the permanent job and to fixed-term contracts with temporary workers. Moreover, the government has adopted the principle of hiring one new employee for every ten 10 persons who have left the public administration. However, all these measures remain insufficient to effectively reduce budget spending on salaries.

At the same time, international lenders insist on reducing the cost of salaries by over 1.4 billion euro. The new reduction of benefits to the salaries of public workers, which will save the budget 360 billion euro is not enough, the Troika has assessed. It will reduce the annual salary of a public worker by an average of 1,000 euro. "The price remains insignificant compared to the sacrifices the private sector has made," analysts in Greece insist. As for pensions, creditors have stated that the cuts are sensitive and they do not want further reductions in this direction. The main challenge now remains the clearing of public administration.

Tags: EconomyMarketsTroikaFiscal consolidationRecovery planGreece
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