Greek reform package means years of pain

Greek pensioners in Athens show their anger at the severe cuts.

Story highlights

  • The Greek government is introducing severe austerity measures to secure a €130 billion ($176.2 million) loan
  • For those under 25, the minimum wage will be slashed by 32%
  • By the end of the year 15,000 public sector workers will have been laid off
  • The government is aiming to save €1 billion ($1.32 billion) on medicines
Greeks look set to pay a heavy price for the latest bailout package aimed at rescuing the debt-stricken country and preventing the crisis spreading throughout the eurozone.
The austerity measures needed to secure another €130 billion ($172.6 billion) in loans were greeted with rioting on the streets of Athens... incurring yet another cost. The bill for cleaning up after the violence has been put at €70 million ($92 million) by the Athens Chamber of Commerce and detailed on the Greek website Capital.gr.
But that figure looks small compared to the longer-term sacrifices the Greek people are required to make under the reform package approved by the Greek parliament on Sunday night.
Under the plan described by Prime Minister Lucas Papademos as "tough" and "painful" the national debt has to be reduced from 160% of GDP to 120% by the end of the decade.
In order to do this, Greece has to make some severe cuts. More assurances are being sought before the money is approved but the Greek parliament has pledged to:
• Reduce the minimum wage straight away from €751 ($989) to €600 ($790) per month. For those under 25, the minimum wage will be slashed by 32%
• Cut pension provision and include a "strict link between contributions and benefits"
• Make 15,000 public sector workers redundant by the end of the year.
It must also give regular budget reports to the so-called troika -- made up of the European Commission, European Central Bank and International Monetary Fund -- who are helping to finance Greece.
But the austerity measures do not end there.
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In a long list of proposed reforms, the Greek government resolved to modernize the health system, keeping public health expenditure at or below 6% of GDP.
It also means cutting overtime pay for hospital doctors to save at least €50 million ($66 million), and a plan to reduce spending on medicines by more than €1 billion ($1.32 billion) in 2012. The government hopes to make the saving by using less expensive and generic medicines.
Among other measures, the military budget will be cut by €300 million ($395 million) and spending on public investments reduced by €400 million ($527 million).
Public sector workers face further wage cuts while the government proposes a largescale privatization program with the aim of collecting billions of euros "in the medium term."
It intends to overhaul the tax system and crack down on widespread tax evasion that has plagued the Greek economy for years by, among other things, installing a new IT system and introducing automatic deductions from wages.
Many analysts are concerned that the severe austerity measures could make matters worse. As the clean-up from the Athens rioting began, Greek political expert Roman Gerodimos warned that extreme austerity could provide ideal conditions for extremist views to thrive.
"The political system in Greece is changing and the repercussions may well be felt across Europe and the world," he said.
The Greek government has recognized that cuts alone will not be enough to save the country.
Greece is in its fifth consecutive year of recession, and the UK's Financial Times reports Athens bankers as saying the economy is projected to shrink by another 3%.
Proposing a "business-friendly Greece" the government has pledged to introduce a stimulus package alongside the cuts that includes simplifying building and operating permits, increasing competition in the energy market and cutting the bureaucracy needed to export.