ATHENS, Greece — The Greek Cabinet on Thursday approved and submitted to Parliament a new round of painful austerity measures and a $73 billion privatization drive that are essential for the debt-ridden country to continue receiving funds from its international bailout.
The country is lagging behind with reforms promised in return for last year’s $160 billion package of rescue loans from its European partners and the International Monetary Fund. Fellow eurozone governments have warned that if Greece does not enforce new austerity, it will be cut off from aid.
Without the next installment from its rescue loans due in July, Greece, which remains stuck in recession and locked out of international bond markets, will default on its massive debts.
Finance Minister George Papaconstantinou said the plans were approved by the Cabinet and submitted to Parliament.
“The medium term framework includes interventions to achieve a deficit of 7.5 percent of GDP [gross domestic product] in 2011, and broader interventions to reduce the deficit below 3 percent of GDP by 2014, and around 1 percent for 2015,” he said. “It also advances the broader privatization program.”
No specific date has been set for a vote, but three Cabinet officials said they expected it to be held before June 28. They spoke on condition that their names would not be used, as the measures had not yet been formally made public.
The governing Socialists hold a six-seat majority in the 300-member legislature, but many party backbenchers have strongly criticized the new austerity plan — which follows a series of pension and salary cuts last year, accompanied by increases in taxes and retirement ages.
However, none of the disgruntled Socialist lawmakers have openly threatened to vote against the measures.
Once the measures are approved, the government will table supplementary legislation on their precise implementation. Officials say both pieces of legislation must be ratified before Greece can receive the next installment of the EU and IMF loans.
The new plans include a remedial $9.4 billion package of cuts and tax hikes for this year, a renewed $32.15 billion austerity drive for 2012-2015 and the privatization program. Officials said all Greeks earning more than €8,000-10,000 annually will be charged an extra tax worth up to 3 percent of their income every year for the next four years, while the sales tax on restaurants and bars will increase to 23 percent.
Civil servants and pensioners are expected to suffer more income cuts, while health, education, defense and social spending will be further curtailed.
“We have sought and we have found the fairest possible solution” in the new austerity cuts, Prime Minister George Papandreou said, according to another Cabinet official who was reading from a text of the premier’s remarks.
Eurozone finance ministers meeting in Brussels on June 20 and EU leaders gathering on June 23-24 are to discuss Greece’s situation.
“We expect the Greek parliament to approve the measures put forward by the Greek authorities in the last review of the troika, so that the euro area finance ministers can take this into account when they decide on the next disbursement,” Amadeu Altafaj-Tardio, a spokesman for the EU’s Monetary Affairs Commissioner Olli Rehn, said in Brussels shortly before the Cabinet approval.
In Athens, Cabinet officials said details of the measures would be announced later Thursday. One official said they included an extra income tax levy of between 1 and 3 percent, depending on base salary, for the next four years, and retroactively applicable to last year.
The pressure on Papandreou and his government is greater than ever, with the country’s international creditors calling for cross-party support for the bailout program and openly criticizing the slow pace of reforms.
“After a strong start in the summer 2010, reform implementation came to a standstill in recent quarters,” the European Union, the European Central Bank and the International Monetary Fund wrote in a summary of their recent assessment of Greece’s efforts. The Associated Press obtained a copy on Thursday.
The three institutions, known as the troika, also cited “political risks” to the implementation of the budget cuts and privatization program in their findings, which were circulated among eurozone finance ministers Wednesday.
Those “doubts on the ability and the willingness of the Greek government and society to persevere in fiscal consolidation, and in restoring competitiveness” are the main reason Greece likely won’t be able to access financial markets again next year, leading to serious financing gaps, the troika concluded.
In the first quarter, Greece’s GDP shrank 5.5 percent from a year earlier, the national statistical agency said Thursday. The troika now expects Greece’s economy to shrink by 3.8 percent in 2011, worse even than the 3.5 percent recession the EU predicted only in May.
Without the additional measures this year, Greece’s budget deficit would remain above 10 percent of economic output, the troika said, way off the 7.5 percent target set out in the program.
In addition to the recession, the crisis has led to significant job losses, with unemployment in March reaching 16.2 percent, the highest since monthly data began to be released in 2004.
The protracted pain, with little prospect of respite visible on the horizon, has prompted a series of strikes and protests.
Workers at Greek state-run companies walked off the job Thursday to protest the government’s privatization plan, which they fear will lead to further job and salary cuts.
Under the slogan “we won’t sell,” they marched through central Athens.
Public transport workers walked off the job in the early morning and late evening, while port workers, post offices and banks called a 24-hour strike. Television station technicians were also on strike, as were journalists at the state-run broadcaster, disrupting live news programing. A general strike has been called for June 15.
Angry Greeks have taken over the central Syntagma Square, setting up a tent city in a sit-in. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.
A few hundred were there late Thursday, blowing whistles and chanting “Thieves, thieves.”
Elena Becatoros in Athens, Gabriele Steinhauser in Brussels and Juergen Baetz in Berlin contributed to this report.