The Greek government announced plans this evening to cut pensions, extend a property tax hike and put tens of thousands of public workers on notice as part of a deal to continue receiving aid funding from its international lenders, government officials said tonight.
The cabinet agreed to cut pensions amounting to more than €1,200 a month by 20 per cent and further reduce payments for former state workers who had retired before the age of 55, the senior government officials said on condition of anonymity.
"We tried to find the most just measures possible," said one of the officials who attended the cabinet meeting.
The government will also extend a new property tax hike originally due to expire next year until at least 2014.
It will also put 30,000 civil servants in "labour reserve" this year, the official said, which means it will reduce their pay to 60 per cent of their salaries and give them 12 months to find new work in the state sector or lose their jobs.
World stocks slipped this afternoon as investors cautiously awaited the outcome of a Federal Reserve meeting which could offer further stimulus for the ailing US economy, while ongoing uncertainty about Greece's debt crisis pressured the euro.
The Federal Open Market Committee, the Fed's policymaking armended its two-day policy meeting this evening with a decision to stock up on longer-term Treasury debt to push longer-term interest rates lower.
The Federal Reserve ramped up its aid to the US economy, launching an effort to put more downward pressure on long-term interest rates and increase its support for housing.
Warning of "significant" downside economic risks, the US central bank said it would launch a $400 billion program to twist its $2.85 trillion balance sheet more heavily toward longer-term securities by selling short-term government debt to purchase longer-dated Treasuries.
It also said would reinvest proceeds from maturing mortgage and housing agency bonds it holds back into the mortgage market, an acknowledgment of just how weak housing remains.
"Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated," the Fed said in a statement after concluding its two-day meeting. "There are significant downside risks to the economic outlook, including strains in global financial markets."
The move was met with a mixed reception in financial markets. US stocks sold off, apparently spooked by the Fed's dismal outlook, but prices for long-term government debt rose, pushing yields lower in a sign the Fed's action was more aggressive than some investors had expected.
The yield on the benchmark 10-year Treasury note fell to 1.871 per cent, its lowest in more than 60 years.
Faced with a 9.1 per cent jobless rate and an escalating sovereign debt crisis in Europe, Fed officials had signaled they would seek to prevent already sluggish US growth from weakening further.
It is unclear, however, how effective such new measures would be in bolstering US growth, given that economic growth is slowing despite the central bank's $600 billion bond buying program that ended in June.
The MSCI world equity index was down 0.7 per cent on the day, though still more than 3.0 percent above its one-year low set earlier in September.
Persistent fears of a possible Greek debt default weighed on investor sentiment, with Athens and international lenders yet to reach a deal to allow the next tranche of bailout funds to be paid.
Greece is the front line in the euro zone debt crisis that has also engulfed Ireland and Portugal and now threatens Italy, Spain and some of Europe's biggest banks, risking plunging the West back into recession.
In its Global Financial Stability Report, the International Monetary Fund said the crisis had increased European banks' exposure by €300 billion and they needed to recapitalise to ensure they can weather potential losses.
"Risks are elevated and time is running out to tackle vulnerabilities that threaten the global financial system and the ongoing economic recovery," the report said.
The global lender did not try to measure banks' capital needs. Europe-wide bank stress tests in July drew derision when they found only eight banks deficient in capital with a combined shortfall of just €2.5 billion.
Officials said European governments are now looking seriously at ways to shore up banks' capital after initially rejecting an IMF call last month for urgent action.
Fears of another credit crunch or recession due to Europe's inability to overcome the debt crisis have dominated the run-up to this week's IMF/World Bank and Group of 20 meetings of finance chiefs in Washington.
After a summer lull in protests, Greece's two biggest labour unions said they would jointly stage 24-hour strikes on October 5th and October 19th to protest against the new measures required by international lenders.
"We will fight to the end, to topple this policy," Ilias Iliopoulos, general Secretary of public sector union ADEDY, said today. "The troika (EU and IMF) and the government must go."
Finance minister Evangelos Venizelos acknowledged before the meeting that Greece's public finances would have gone off the rails without checks by the so-called troika of EU/IMF inspectors, who walked out of Athens on September 3rd after uncovering a new deficit shortfall.
"If it weren't for the troika's control... unfortunately we would have derailed fiscally," Mr Venizelos told lawmakers, adding that the country needed the help of international lenders, who have imposed a string of unpopular tax rises, pension cuts and economic reforms since they rescued the country in May 2010.
Mr Venizelos had a two-hour conference call late yesterday with senior troika officials, who pushed Greece to accelerate its austerity and reform drive.
Reuters
