Greece to slash jobs, trim deficit

GREECE has announced new budget deficit targets and plans to trim its civil service to meet creditors' demands before a euro zone meeting that could free up an ?8 billion ($11.2 billion) loan.

By InvestSMART · 4 Oct 2011

By InvestSMART ·
4 Oct 2011

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GREECE has announced new budget deficit targets and plans to trim its civil service to meet creditors' demands before a euro zone meeting that could free up an ?8 billion ($11.2 billion) loan.

The 17 countries that share the euro currency met in Luxembourg last night in an effort to reach an agreement on releasing the bailout funds, which have been blocked for the past month.

Divided euro zone ministers will seek to avert a Greek default, which could send sharemarkets into a panic, deal an unprecedented blow to the euro and push the world back on the brink of a fresh financial crisis.

The British Prime Minister, David Cameron, warned the euro zone should act decisively as it was posing "a threat to the worldwide economy".

Mr Cameron said it would be "very bad" for Britain if the euro zone broke up, given that it accounted for 40 per cent of British exports.

After an extraordinary cabinet meeting on Sunday, the Greek government announced its budget deficit should drop to 8.5 per cent of gross domestic product this year from 10.5 per cent last year and to 6.8 per cent of GDP next year.

"This marks the country's entry into another financial phase," the Finance Ministry said of the outlook for next year, when Greece should record, for the first time, a primary surplus of ?3.2 billion.

Following consultations with the European Union and the International Monetary Fund, the government also revealed a plan to shrink the bureaucracy by placing 30,000 civil servants temporarily in a "labour reserve".

Civil servants' jobs are protected by Greece's constitution, but the government overcame the obstacle by placing in reserve those workers close to retirement and scrapping various state organisations.

Greece estimates this move will save it ?300 million next year.

The country is labouring under a crushing ?350 billion debt, with its stripped-bare economy on its knees, and the government says it needs the bailout loan to pay salaries and other bills this month.

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Frequently Asked Questions about this Article…

What bailout loan is Greece seeking and why does it matter for investors?

Greece is seeking a blocked bailout loan of about €8 billion (US$11.2 billion). The loan matters for investors because the funds are needed to pay salaries and other bills this month; failure to release them could increase the risk of default, spark market panic and hit the euro.

What new Greek budget deficit targets were announced?

The Greek government announced its budget deficit should fall to 8.5% of GDP this year (down from 10.5% last year) and to 6.8% of GDP next year, with a projected primary surplus of €3.2 billion in the following year.

How is Greece planning to trim its civil service to meet creditors' demands?

Greece plans to place 30,000 civil servants temporarily into a 'labour reserve,' targetting those close to retirement and scrapping some state organisations. The government says this measure will save about €300 million next year.

What is the scale of Greece's debt and what does that mean for markets?

Greece has an estimated €350 billion debt and a severely weakened economy. For markets, that level of indebtedness raises default risk concerns and can increase volatility in sharemarkets and pressure on the euro if creditors withhold support.

What happened at the euro zone meeting and why should investors pay attention?

Seventeen euro-area countries met in Luxembourg to try to agree on releasing the blocked bailout funds. Ministers were divided; their decision could free up the loan or prolong uncertainty. Investors should watch those meetings because the outcome affects funding, default risk and market sentiment.

What warnings did international leaders give about a Greek default?

Leaders warned that a Greek default could send sharemarkets into panic, deal a major blow to the euro and risk pushing the global economy toward a fresh financial crisis. The British Prime Minister warned that euro-zone instability poses a worldwide economic threat and could hurt UK exports.

How much will the civil service 'labour reserve' save Greece and when?

The government estimates the temporary placement of 30,000 civil servants into a labour reserve will save about €300 million next year.

What should everyday investors watch next regarding the Greece bailout and market impact?

Investors should monitor euro-zone creditor negotiations and announcements about the €8 billion loan release, official updates on Greece's deficit and labour-reserve measures, and market reactions. These signals will indicate whether default risk is rising and whether markets or the euro may face further pressure.