Last updated: April 30, 2010 8:10 am

Greece agrees €24bn austerity package

Greece has agreed the outline of a €24bn austerity package, including a three-year wage freeze for public sector workers, in return for a multibillion-euro loan from the eurozone and the International Monetary Fund, according to people familiar with the talks.

Final details of the measures, which were intended to slash the budget deficit by 10-11 percentage points of gross domestic product over the next three years, were still being worked out, a senior government official said.

Negotiations with officials from the IMF, the European Commission and the European Central Bank are due to be completed at the weekend and the measures will be presented for approval by the Greek parliament next week.

The package also includes an increase in value-added tax, the second this year. “Discussions are still taking place on which of the three [VAT] tiers will be increased,” said the official.

Greek bond and stock markets soared on Thursday in what has been a roller-coaster ride for investors this week.

Greek two-year bond yields, which have an inverse relationship with prices, fell more than 3 percentage points to 12.74 per cent, while the stock market rose 7.14 per cent as confidence grew after it was reported on Wednesday that the EU and IMF were preparing a €120bn loan to bail out ­Athens.

Greece faces exceptionally strict monitoring by the EU and IMF because of its poor record of implementing previous economic reform programmes.

A Greek official said an IMF team visited “spending” ministries to examine details of yearly outlays and pored over the national accounts at the finance ministry during the 10-day negotiations.

“It was a big IMF team, and they went over the budget with a fine-toothed comb,” the official said.

Efforts by Greek negotiators to delay timetables and dilute some public sector reforms made little headway, he said.

“Given the seriousness of the situation, there weren’t really any arguments to be made for further delays,” the official said.

George Papandreou, prime minister, was last week forced to activate the EU-IMF rescue package after three previous rounds of austerity measures failed to convince financial markets that Greece could bring its public finances under control.

On top of the wage freeze, public sector workers will lose their “13th and 14th month” salaries, paid at Christmas and Easter, and see further cuts in allowances.

Andreas Loverdos, social affairs minister, told the Financial Times that pensioners would also lose seasonal bonuses as part of an overhaul of the underfunded state pension system. The average retirement age would be raised from 53 at present to 67, he said.

“The timetable for the pension measures is still being debated, but there isn’t much room for manoeuvre – this is about saving the country from collapse,” Mr Loverdos said.

Greece’s swollen public sector, which employs about 13 per cent of the workforce, will be gradually reduced through a recruitment freeze, the abolition of short-term contracts and closures of hundreds of outdated state entities.

Mr Papandreou outlined the measures in meetings with employers’ associations and trade union leaders on Thursday.

Emerging from the prime minister’s office, Yiannis Panagopoulos, head of the private sector umbrella union GSEE, warned of confrontation ahead.

Structural measures aimed at boosting competitiveness include the
opening of “closed-shop” professions – from truck-driving to employment agencies – and a fast-track privatisation programme.

Additional reporting by David Oakley in London

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