Greece faces 150,000 job-cut hur­dle to aid pay­ment

The Pak Banker - - COMPANIES/BOSS -

Greece is locked in talks with in­ter­na­tional cred­i­tors in Athens about shrink­ing the government work­force by enough to keep bailout pay­ments flow­ing.

Iden­ti­fy­ing re­dun­dant po­si­tions and putting in place a sys­tem that will lead to manda­tory ex­its for about 150,000 civil ser­vants by 2015 is a so­called mile­stone that will de­ter­mine whether the coun­try gets a 2.8 bil­lion-euro ($3.6 bil­lion) aid in­stal­ment due this month. More than a week of talks on that has so far failed to clinch an agree­ment.

The sea­son­ally ad­justed un­em­ploy­ment rate fell for the first time in al­most five years in De­cem­ber. Job­less­ness among Greeks aged 15 to 24 is 57.5 per­cent, the high­est in the euro area. Greece is near to reach­ing its tar­get in a buy­back of sov­er­eign debt that will un­lock aid from the In­ter­na­tional Mon­e­tary Fund and the Euro­pean Union.

“Pub­lic sec­tor job cuts are a ma­jor part of the pro­gram and they are one of the most po­lit­i­cally dif­fi­cult parts to achieve,” said Hol­ger Sch­mied­ing, chief econ­o­mist at Beren­berg Bank in Lon­don. “And for the Greek government, which has two left-of-cen­ter par­ties, it is ex­tremely dif­fi­cult to really im­ple­ment those job cuts. I’m afraid this will likely stay a point of con­tention, re­view af­ter re­view af­ter re­view.”

More than three years af­ter re­veal­ing that Greece had mis- led its euro part­ners on the state of its fi­nances, the na­tion re­mains re­liant on loans from the euro area and the In­ter­na­tional Mon­e­tary Fund to pay pen­sions and wages. To qual­ify for pay­ments from the to­tal of 240 bil­lion eu­ros pledged to the coun­try, it has to con­tinue meet­ing eco­nomic tar­gets, in­clud­ing re­duc­ing staff lev­els.

Greece’s 10-year bond yield has dropped 20 per­cent­age points since reach­ing al­most 31 per­cent in May, af­ter euro area fi­nance min­is­ters re­vamped the coun­try’s sec­ond aid pro­gram. Pol­icy mak­ers gave Prime Min­is­ter An­to­nis Sa­ma­ras two ex­tra years un­til 2016 to meet bud­get-re­duc­tion tar­gets af­ter he forged a coali­tion government fol­low­ing two elec­tions that jeop­ar­dized the coun­try’s sur­vival as a euro mem­ber.

The yield on the government’s bench­mark 10-year bond is about 10.61 per­cent, down from more than 11 per­cent a week ago and about half the av­er­age dur­ing the past year. A Greek fi­nance min­istry of­fi­cial said March 10 that the government aims to fi­nal­ize talks on the dis­burse­ment in the coming days. Un­der the bailout con­di­tions adopted last year, Greece needs to cut pub­lic sec­tor work­ers by 25,000 this year to move to­ward a goal of cut­ting 150,000 from its 2010 to­tal by the end of 2015.

While state em­ploy­ees have borne the brunt of pay cuts, with in­comes down by as much as 20 per­cent, their jobs are pro­tected by the Greek con­sti­tu­tion. Lower wages have elim­i­nated “the dif­fer­en­tial growth rate with the rest of the euro area in pub­lic sec­tor wages cu­mu­lated since 2000,” the Euro­pean Com­mis­sion said in De­cem­ber. “This does not ex­clude the need for fur­ther ef­forts given the debt prob­lem and huge im­bal­ances fac­ing the Greek econ­omy.”

About half of Greece’s gen­eral government spend­ing goes to pay wages and pen­sions, ac­cord­ing to data from the Gen­eral Ac­count­ing Of­fice. The coun­try had 667,733 em­ploy­ees in the civil ser­vice on Oct. 1, a fig­ure that doesn’t in­clude staterun com­pa­nies such as work­ers in pub­lic tran­sit. The coun­try has pledged to hold to an at­tri­tion rule of one new hire for ev­ery five or 10 re­tirees, de­pend­ing on the dif­fer­ent lev­els of government.

“It’s im­por­tant to re­duce in a sus­tain­able way the bur­den to so­ci­ety from this over-bloated bu­reau­cracy,” said Michael Mas­sourakis, chief econ­o­mist at Al­pha Bank SA in Athens. “The im­por­tant thing, of course, is that this is a mile­stone for the March dis­burse­ment of 2.8 bil­lion eu­ros, and if the ne­go­ti­a­tions break down, that will be a se­vere blow.” Fail­ure would have “mar­ket reper­cus­sions for Greece and should be avoided at any cost,” he said.

Politi­cians, in­clud­ing as Fo­tis Kou­velis, head of the Demo­cratic Left, one of two ju­nior part­ners in the coali­tion government.

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