Greek gov't outlines new austerity measures as budget predicts deeper recession, higher debt

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FILE - In this Monday, Oct. 15, 2012 file photo shows Greece's Prime Minister Antonis Samaras delivers a speech in a forum of International Herald Tribune in Athens. Samaras said on Tuesday, Oct. 30, 2012 that the government had essentially ended negotiations on new austerity measures and warned of "chaos" if the reforms are not passed. (AP Photo/Thanassis Stavrakis, File)

ATHENS, Greece - Greece's government on Wednesday outlined the new austerity measures it intends to take over the next two years, and revised its 2013 budget figures which predict the debt load will increase sharply as the recession deepens into a sixth straight year.

Unions responded by announcing a rare 48-hour general strike for next week, when the new measures demanded by Greece's international creditors are expected to be voted on in Parliament.

The €13.5 billion ($17.5 billion) worth of cutbacks for 2013-14 include a two-year increase in the retirement age — from the current average of 65 — salary and pension cuts and another round of tax increases, including raising taxes for the interest on bank deposits from 10 to 15 per cent.

The vast majority of the measures, about €9.2 billion, are to be taken in 2013. They include a €4.6 billion cut in pensions and a €1.17 billion cut from salaries. Healthcare spending will be trimmed a further €455 million.

Parliamentary approval of the measures is essential if Greece is to receive the next installment of its bailout loans — this time a hefty €31 billion. Without the funds, the country has said it will run out of money on Nov. 16.

Greece's three governing parties have spent months negotiating these measures with international debt inspectors, who have yet to formally approve them. The torturous talks have severely strained ties in the already uneasy coalition of conservatives, socialists and a small left-wing party.

With just days to go before an expected Parliamentary vote on the measures next week, the Democratic Left has insisted it cannot back them. Prime Minister Antonis Samaras has warned that the country will face financial chaos if they are not passed.

Finance ministers from the other 16 countries that use the euro have said they would decide on Nov. 12 whether to give Greece its next batch of bailout loans provided the country agrees to the reforms.

After a telephone conference Wednesday, the ministers praised Greece's agreement to undertake "ambitious and wide-ranging measures in the areas of fiscal consolidation, structural reform, privatization and financial sector stabilization," and called on Greek authorities to conclude the negotiations as quickly as possible.

German Finance Minister Wolfgang Schaeuble, however, sounded pessimistic about the chances of a quick decision on the payout of the bailout installment.

"To secure the tranche being paid out, we need preconditions to be met that still have not been achieved," said.

The strain in the governing coalition was evident in a Parliamentary vote Wednesday on a bill to allow the government to privatize public utilities. The bill passed by majority, but lawmakers from the two junior coalition partners voted against certain articles. Dissenters included former Prime Minister George Papandreou, who voted against one article.

Finance Minister Yannis Stournaras submitted the revised budget to Parliament Wednesday. The deputy finance minister, however, cancelled a scheduled presentation of the budget due to a 24-hour journalists' strike to protest austerity measures.

The revised figures highlight the country's monumental struggle in turning around its public finances.

Government debt is projected to rise to 189.1 per cent of gross domestic product in 2013, above the 182.5 per cent predicted in the preliminary draft submitted at the start of October, and up from the 175.6 per cent forecast for this year.

The deficit is now projected at 5.2 per cent of GDP in 2013, up from 4.2 per cent predicted in the preliminary draft of the budget — but still an improvement from the 6.6 per cent predicted for this year.

Predictions of a primary deficit surplus — which strips out the cost of paying interest on outstanding debt — of a modest 1.1 per cent have also been revised downwards, with the projection now standing at 0.4 per cent for next year.

The recession, meanwhile, will be deeper than the 3.8 per cent contraction the preliminary draft had predicted, with the new figures estimating the economy will shrink by 4.5 per cent.

Unemployment is projected at 22.8 per cent next year, marginally higher than the 22.4 per cent predicted for 2012. Greece registered record unemployment in July this year, with the jobless rate reaching 25.1 per cent.

National debt will stand at €346.2 billion, slightly higher than this year's €340.6 billion, the revised budget showed.

The economy is forecast to gradually clawing its way out of the recession and eventually post growth of 3.5 per cent in 2016.

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Nicholas Paphitis and Derek Gatopoulos in Athens, Don Melvin in Brussels and Juergen Baetz in Berlin contributed to this report.