Greece is today trying to push through a batch of emergency laws that will further cut incomes and state spending, a day after securing a new bailout and debt relief deal designed to stave off bankruptcy.
The new austerity measures demanded by creditors in return for the rescue loans follow two years of deepening misery, with the Greek economy in freefall, unemployment at a record high and the state of the public finances in worse shape than previously forecast.
Early on Tuesday morning, the euro zone approved Greece's second financial lifeline in less than two years, worth €130 billion and a €107 billion debt writedown by banks and other private holders of Greek bonds.
In response to the writedown agreement, Fitch today downgraded Greece's credit rating further into junk status, from 'CCC' to 'C.' The agency said a Greek default "is highly likely in the near term" and added that it would briefly consider placing Greece in "restrictive default" once the bond swap is completed - a warning it first issued in June.
Athens argues that the default rating would be a simple technicality, as the twin deals struck this week will allow the country to repay bonds maturing next month - thus avoiding a disorderly default - and remain in the common European currency it joined in 2001.
Even then, the price of salvation for ordinary Greeks is only just starting to sink in. Legislation tabled in Parliament late last night outlines a total €3.2 billion in extra budget cuts this year agreed by the Cabinet last week.
The measures include nearly €400m in cuts to already depleted pensions. Health and education spending will be reduced by more than €170m, subsidies to the state health care system will be cut by €500m, and health care spending on medicine will fall by €570m. And some €400m will be lopped off defence spending - three quarters of which will come from purchases.
The draft law also drastically revises the 2012 budget, changing the government deficit target to 6.7% of gross domestic product from an initial forecast of 5.4%.
Even worse, plans for a modest primary surplus - which excludes debt servicing costs - have been scrapped and Greece will instead post a primary deficit of nearly €500m, or 0.2% of GDP.
Parliament is expected to vote on the cuts and budgetary revisions early next week. Debate starts today at committee level on a separate draft law on adopting the private debt writedown. Parliament's plenary session will vote on the draft law tomorrow.
"The decisions that have been taken and those that will be made, create the conditions that will help the recovery and growth of the Greek economy," Prime Minister Lucas Papademos said after briefing President Karolos Papoulias on the euro zone decisions. "Much remains to be done in the coming weeks."
Both pieces of legislation are expected to be approved, as the interim governing coalition headed by Papademos, a former central banker, controls 193 of the House's 300 seats. But earlier this month the two coalition partners - the majority Socialists and the conservatives - were forced to expel a total 43 deputies who rebelled against new austerity cuts.
But it remains uncertain whether even the combination of new bail-out and writedown measures will be enough to save Greece, whose economy is in a fifth year of recession and could continue to shrink as the cutbacks cripple consumer spending and investment.
Even with the writedown, Greece's public debt will be reduced at best from €368 billion, or nearly 170% of GDP last year to 120% in 2020 - around the level it was in 2009.
Greek retailers said today that the prolonged austerity and recession were expected to cost another 100,000 jobs in the sector in the first half of 2012 alone - following 65,000 job losses in June-December 2011.
Over one million Greeks, or 21% of the work force, were out of work in November. The government is also cutting private sector wages, with the minimum monthly salary being reduced 22% to €580 and €510 for workers aged under 25, an age group that suffers from 50% unemployment. Salaries are even lower for part-time employees.
Werner Hoyer, the new president of the European Investment Bank, told Germany's Handelsblatt newspaper that "Greece now needs, alongside the unavoidable austerity programme, a Marshall plan too " - a reference to the US aid plan that rescued an impoverished Europe after World War II.
Hoyer suggested that Greeks working in the European Commission and other EU bodies should be motivated to return home and help out, to avoid the impression that Greece "is under tutelage and directed by others." But he said the structural reforms Greece needed could take up to two decades.
