Greece said it will accelerate budget cuts to keep emergencyloans flowing, extending austerity measures that have deepened arecession and failed to ease doubts that it can avoid default.

Subway, tram, train, bus and trolley workers and state-schoolteachers are holding a 24-hour strike in Athens today to opposecuts in pensions and workers' pay. Flights to and from the AthensInternational Airport will be disrupted as air- traffic controllerswalk out for three hours.

The latest round of cuts targeting civil servants' wages andpensioners were demanded by international lenders to ensure Greecereach deficit-reduction targets in a 110 billion-euro ($151billion) bailout and receive a payment due next month.

The cuts will enable Prime Minister George Papandreou to addresshis biggest deficit, the “credibility deficit,” Jens Bastian, theAlpha Bank Fellow for Southeast Europe at St. Antony's College atthe University of Oxford, said in a Bloomberg Television interviewtoday. Meeting international targets and reducing civil-servicecosts are “a matter of national urgency,” he said.

Finance Minister Evangelos Venizelos heads to Washingtontomorrow to attend the annual meetings of the InternationalMonetary Fund where he will hold talks with IMF Managing DirectorChristine Lagarde.

Without the infusion of emergency loans, “the risk is that thesystem, the financial sector and the real economy stopfunctioning,” Venizelos told Parliament in Athens before Papandreouconvened his inner Cabinet yesterday to complete the cuts.

Latest Cuts
Measures announced following tworounds of talks with the European Union and the IMF include: a 20percent cut in pensions of more than 1,200 euros ($1,650) a month,according to a government statement; pensions paid to those youngerthan 55 will be shaved by 40 percent for the amount exceeding 1,000euros and wages will be lowered for 30,000 state employees.

With an 8 billion-euro aid payment in the balance, Greekcreditors are also in the final stages of negotiating a bondexchange intended to reduce the country's debt load of about 350billion euros. The swap was part of a second rescue set by Europeanleaders on July 21.

Fund Ratification
EU officials are squabblingover implementation of the agreement, which includes an upgrade ofthe bailout fund, as national legislatures ratify its terms,countering public opposition to channeling more money to keepGreece in the currency union.

Greek bonds rose in early trading today, sending the yield ontwo-year notes down 27 basis points to 66.2 percent at 12:20 p.m.in Athens.

While Greece says it has enough cash to cover its needs forOctober, any disbursement of new funds would likely only see itthrough to the end of the year.

Talks on the Greek aid payments resumed after IMF and EUmonitors earlier this month suspended the review for a sixthtranche of loans following the discovery of an unexpected hole inthe budget.

Cuts totaling about 28 billion euros that were outlined in June,which were made to ensure the release of the previous aid payment,will be completed by 2014 instead of 2015, as planned, thegovernment statement said yesterday.

The austerity measures are deepening a three-year recession,making it harder for the government to meet the deficit goals laidout in its aid package. The IMF's representative in Athens saidSept. 19 the economy will shrink 5.5 percent this year and another2.5 percent next year.

Greek government figures showed the 2011 deficit through Augustwidened 22 percent to 18.9 billion euros, more than the target of18.1 billion euros for the period. Greece pledged to reduce itsdeficit to about 7.5 percent of gross domestic product this yearfrom 10.5 percent in 2010.

Bloomberg News

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