Petros Giannakouris, Associated Press
ATHENS, Greece — Greece will have to take fresh austerity measures, the debt-ridden country's finance minister said Wednesday, a day after Athens moved a step closer to getting the vital bailout funds it needs to avoid a disastrous default next month.
The prospect of more tax increases and spending cuts are likely to be met with mounting concern in a country mired in a deep recession and the number of unemployed rising to around one in seven.
"We have to take supplementary measures ... because of the recession, because of the difficult task, and the weakness of the central administration have not produced the required results," Evangelos Venizelos said in Parliament ahead of a Cabinet meeting.
He did not specify what the measures might be. Those taken so far include pension and salary cuts in the public sector, and a series of tax hikes on everything from food and fuel to property and income.
Greece has been under pressure from its international lenders to meet fiscal targets and slash the size of its bloated public sector, which has more than 750,000 staff in the country of 11 million people. It has already pledged to suspend up to 20,000 civil servants on reduced pay as part of a plan to shed 150,000 public jobs through 2015.
It also recently announced a new property tax, to be paid through electricity bills to make it easier and faster for the state to collect. However that plan has met with resistance — state electricity company unionists have threatened not to collect the tax and not to cut off the electricity supply to those who refuse to pay.
A public reeling from repeated rounds of spending cuts and tax hikes is showing waning patience with measures that appear not to have the necessary effect on the state budget. Many warn that with the country facing a fourth year of recession in 2012 and unemployment at more than 16 percent, yet more austerity could sink the economy.
Yannis Varoufakis, an economics professor at Athens University, said the government's actions appear increasingly desperate and likened its strategy to "the last stages" of the Vietnam war.
"The more obvious it was that the war was lost, the more desperate the attempts of the United States army and air force to bomb Vietnamese villages in order to save them," Varoufakis said.
Even though the prevailing view in the markets now is that Greece will receive the next batch of bailout funds, many analysts think the recent game of brinkmanship played out between the country and its creditors will be repeated at the end of the year.
Varoufakis said a "real default will be on the cards" in December when Greece will be looking to get the next installment of bailout cash.
"We will have to wait to find out what the state of the credit crunch on the European banking sector will be because that is what will determine whether Greece defaults in December or later," Varoufakis said.
For now Venizelos is pressing ahead with the strategy and argues that Greece will emerge a stronger economy once it's got a grip on its public finances and rebalanced the economy more towards the private sector and away from the state.
Venizelos said that without the supervision of debt inspectors from the European Central Bank, the International Monetary Fund and the European Commission, collectively known as the troika, Greece would have "slipped off the fiscal track."
The troika has been pressing the Greek government hard to adhere to the reforms it agreed to in return for bailout money. In particular, the inspectors want it to move faster in reducing the size of the public sector.
Their quarterly reviews of the country's progress is essential to the country's international creditors releasing funds from a €110 billion ($151 billion) bailout loan that has been keeping Greece afloat since last year.
European leaders also agreed in July to extend a second bailout of €109 billion, mostly funded from an EU rescue fund known as the European Financial Stability Facility. The €440 billion EFSF needs to be ratified by all 17 eurozone states to be implemented. Greece's parliament ratified the bill Wednesday with 183 votes in favor to 38 against in the 300-member parliament.
The troika suspended its current review in early September amid talk of missed targets and delays, and Venizelos held two critical conference calls with them on Monday and Tuesday.
Brussels and Athens said progress had been made in the calls, and the troika heads are due back in the Greek capital next week.
Venizelos conceded that it was a "humiliation" for Greece to ask for loans and to be under international supervision, but that the country had to if it was to avoid a more a calamitous outcome.
"If we did not have the supervision of the troika ... we would have again unfortunately slipped off the fiscal track," he said. "Just as the country derailed in an unprecedented away between 2004 and 2009. It's not a question of intent. It's a matter of mentality, lack of ability, management structure, methods, habits, and inertia."
"The choices we are making are, unfortunately, absolutely necessary," Venizelos insisted.
Theodora Tongas in Athens contributed.
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