The Greek government this evening announced additional austerity measures as it seeks to plug a budget gap and unlock rescue funding from the EU and IMF needed to avoid a default.
Pensions above €1,200 a month will be cut by 20%, 30,000 state employees will be temporarily laid off and the revenue exemption on annual taxes will be reduced to €5,000, the government said in a statement.
Sources also said the government will also extend a new property tax hike originally slated to expire next year until at least 2014.
It will put 30,000 civil servants in "labour reserve" this year. This means it will reduce their pay to 60% of their salaries and give them 12 months to find new work in the state sector or lose their jobs.
Greece has been struggling to convince the European Union and International Monetary Fund that it can bring its tough economic overhaul programme back onto track despite delays and targets slipping due a deeper-than-expected recesssion.
After conference calls with Finance Minister Evangelos Venizelos earlier this week, EU and IMF auditors agreed to resume their review of Greek finances needed to unlock eight billion euros in rescue funding.
The audit had been suspended in early September, with sources citing lack of progress with reforms, placing in jeapordy the release of funds needed to prevent Athens running out of cash next month.
Earlier, Greece vowed to stay in the euro zone "for ever" today and promised stronger budget action as the world waited for EU leaders to stop the debt crisis threatening global growth.
"Greece is and will forever be a member of the euro zone," Finance Minister Evangelos Venizelos told parliament after EU and IMF auditors agreed overnight to resume work on whether to release rescue funds to avert Greek default next month.
"We will do anything, we will not place at risk the fate of the country and its place in the euro zone," the minister added.
Auditors from the European Union said last night that "good progress was made" and that "technical discussions will continue in Athens over the coming days."
Venizelos paid tribute to the experts from the EU, European Central Bank and International Monetary Fund, the so-called troika, which have imposed increasingly draconian budget measures on the Greek people.
"If there was no troika control we would have foundered fiscally. It is a matter of attitude, of ability, of administrative structure, of habit, of inertia", he said. "It is fortunate that we are under control because in this way we can achieve self-control," Venizelos added.
The EU-IMF auditors will determine whether the EU and IMF release the next slice of rescue money, of €8 billion under a first bail-out last year. Greece needs the money to avert default next month which would pose serious dangers to the entire euro zone.
"The danger is that the Greek economy and the financial sector will stop operating, this could happen without our will, it could happen by mistake, because the EU and the eurozone in particular faces enormous political, institutional and economic problems," Venizelos said.
The first bail-out totalled €110 billion. Enactment of a second bail-out agreed on July 21 this year depends in part on fulfilment of the initial conditions, but the second rescue of €159 billion is also held up by disagreements within the EU.
"There could be a delay, there could be a misfire, because we are depending on a particularly complex system," Venizelos warned.
At a meeting in Poland at the weekend EU finance ministers decided to delay their judgement on releasing the €8 billion until early in October. With the decision by the auditors to resume their work, suspended on September 2 amid signals they were strongly dissatisfied with Greek progress notably on privatisations, one cloud over the euro zone has lifted slightly.
Financial markets and governments around the world are on edge and calling for the EU to get a grip on the debt crisis which the IMF warned yesterday was one factor dragging the prospects for world growth sharply downwards.
Australia is the latest country urging the EU to get on top of the problem and prevent further contagion. Portugal said that if Greece defaulted, the contagion might force it also to seek a second rescue.
Meanwhile in Paris, French bank BNP Paribas signalled that it might be prepared to accept a second reduction of the amount Greece repays on its debt provided that other creditors did likewise. Under the July 21 rescue, private banks agreed to give up repayments of about €50 billion.
French bank shares fell sharply again today, over concerns which the banks and the government say are unjustified, that they could be hard hit if the Greek crisis worsens and drags down further bonds issued by some other euro zone countries and notably Greece.
Some investment funds had already cut back on lending dollars to these banks, causing central banks last week to make dollars available.
French Budget Minister Valerie Pecresse said today that France was not working on the basis that Greece would default. If Greece enacted measures under the July 21 framework, "it will be saved," she said.
The European Commission switched tack yesterday, acknowledging that the IMF might be right in warning that European banks might need recapitalising to withstand resurgent strains via their holdings of government debt.
And in another sign of contagion, which some top EU officials have warned could cause chaos not only for the euro zone but the EU as a whole, ratings agency Standard & Poor's has downgraded Italian debt.
