Greece promises public sector shake up

Associated Press
A pedestrian walks by a store advertising sales in Athens on Tuesday, Sept. 6 2011. Debt-crippled Greece's borrowing costs reached a new record high on Tuesday amid fears on the country's austerity program, as Prime Minister George Papandreou chaired a cabinet meeting on accelerating delayed structural reforms. (AP Photo)
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ATHENS, Greece (AP) — Greece's finance minister pledged Tuesday to speed up a series of delayed reforms meant to cut flab from the country's bloated public sector without immediate job losses, open up tightly regulated professions to competition and kick-start an ambitious privatization plan.

"Greece is not the pariah of the European Union, it is not a permanent sore and problem," Evangelos Venizelos told reporters after a cabinet meeting. "It is an equal, competitive country that has a very serious problem regarding its public debt and fiscal deficit. We can and shall overcome this, but not without carrying out the structural reforms in full."

Venizelos' announcements came as the debt-crippled country's borrowing costs hit a new record high on fears over the Socialist government's faltering austerity program amid a deeper than expected recession.

The interest rate on Greek 10-year government bonds shot up to about 20 percent — 18 percentage points above the rate for the benchmark German bonds of the same maturity — on a day when the borrowing rates of troubled fellow eurozone countries Italy and Spain also came under pressure.

Extravagant borrowing costs forced Greece out of international bond markets last year, and the country now relies on international loans to keep solvent.

However, Athens still holds short-term debt auctions and was able to raise euro1.3 billion ($1.8 billion) Tuesday in an auction of 26-week treasury bills at an interest rate of 4.80 percent, slightly lower than at a similar sale last month.

A new batch of measures adopted by Parliament in June — as tens of thousands of Greeks protested outside and severe riots raged — included further cuts in the public sector's size and cost, closures and mergers of state enterprises and an ambitious plan to sell euro50 billion ($70.5 billion) in state assets by 2015.

But there has been little noticeable progress, while previously decided reforms such as the opening of tightly regulated professions, are still lagging.

Venizelos promised that plans to abolish, merge or shrink institutions and enterprises — including state ERT broadcaster — would be brought nine months forward and implemented "in coming weeks." Excess personnel will be moved to other jobs or suspended for up to a year on 60 percent pay and offered retraining options, while some could end up being sacked despite a decades-old guarantee on public sector jobs.

"At this stage there will not be any layoffs, because suspension offers workers opportunities," Venizelos said. "If an employee does not take advantage of any opportunity, then of course his contract will be ended."

All civil servants will also receive a flat rate of salary, irrespective of what ministry employs them.

"Nobody will make more than their colleagues with the same abilities who do the same job but happen to work in another section of the civil service," Venizelos said.

He added that the privatization program remained on track, with sales set to reach euro5 billion ($7 billion) this year.

"The first wave of privatizations ... will go ahead immediately," Venizelos said, adding that a group of state assets will be transferred Wednesday to a special fund set up to develop state property. "Our privatization targets are attainable and will be met on time," he said.

After living beyond its means for years and piling up a mountain of debt in the process, Greece just avoided bankruptcy last year through a euro110 billion ($155 billion) rescue loan package from its European Union partners and the International Monetary Fund.

The realization that even that would not be enough amid a shrinking economy and a malfunctioning state revenue collection system resulted in a second bailout in July, worth an extra euro109 billion ($153.7 billion).

The latter deal also hinges on banks and social security funds sharing in the bailout cost by voluntarily swapping their Greek government bonds for new ones with lower interest rates or slightly smaller face value.

The finance ministry said late Tuesday it was "encouraged by the widespread expressions of interest in its proposed transaction," and expected nonbinding responses "as soon after Sept. 9 as is practical."

Continued release of the vital funds — any substantial delay could force Greece to default on its debts — depends on the government's progress with reforms and deficit-cutting measures.

But talks with EU and IMF inspectors were unexpectedly suspended last week for 10 days, to let Greece complete what the EU said was "technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms."

Venizelos said the next loan installment, worth euro8 billion, was secure.

"No question was ever raised on disbursement" of the funds, he said.

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Elena Becatoros in Athens contributed.

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