Greek cabinet discusses pension and wage reform as civil service strike looms

Greece vows pension, wage reform as strike looms

ATHENS, Greece — Greece took further steps Tuesday to calm global markets spooked by its debt crisis, pledging to increase retirement ages and accelerate reforms, on the eve of the first nationwide strike against new austerity measures.

Prime Minister George Papandreou told a cabinet meeting that the reforms “must go ahead now … with greater speed.”

“Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions that will protect — as far as that is possible — the weaker and middle classes,” said Papandreou, who is to meet in Paris with French President Nicolas Sarkozy on Wednesday ahead of a European Union summit the following day.

Under intense pressure from European Union partners and market speculation — which sharply hiked Greece’s borrowing costs — Papandreou’s center left government has committed to a four-year austerity plan meant to tame a massive budget deficit and soaring debt.

The budget deficit stands at 12.7 percent of annual economic output in 2009, more than four times the limit allowed by the EU, while the public debt has exceeded 113 percent of annual economic output. Combined with the country’s ever-increasing borrowing costs, this has raised fears of a protracted crisis with contagion to other troubled EU economies such as Portugal and Spain, and pushed down the euro exchange rate.

Greek stocks closed up 4.96 percent Tuesday, while the spread between 10-year Greek government bonds and the benchmark German issues of equivalent maturity fell to just under 320 basis points, down 30 points from Monday. The improved climate came ahead of Thursday’s EU summit in Brussels, and after news that European Central Bank President Jean-Claude Trichet had left a banking conference in Australia to attend the summit, stoking speculation the heads of government and state could come up with some kind of solution for Greece.

The government has announced €2 billion ($2.74 billion) in public spending cuts so far, and hopes to raise more than €5 billion from extra taxes and fighting endemic tax evasion.

But Papandreou’s Socialists, elected four months ago, have shied at further salary cuts or layoffs in the civil service, which employs some 750,000 people — all guaranteed lifetime jobs.

They have, however, said they will freeze salaries, increase retirement ages and cut stipends, which often make up a large proportion of a civil servant’s income.

Labor and Social Security Minister Andreas Loverdos on Tuesday announced a two-year increase in the average retirement age, to bring it to the age of 63 by 2015. Papandreou had said he would increase the retirement age, but not by how much or by when.

“The situation is dramatic, and our response is clear. We are changing the country’s social security system to keep it alive and allow it to have a future,” Loverdos said. “The reforms … will add life to the system and allow it to endure for the coming decades.”

Loverdos said the changes would bring Greece’s average retirement age above the EU average of 61.1 years.

The Finance Ministry also gave details of a previously announced hike in fuel taxes, saying gasoline would now cost 14 euro cents more per liter, while diesel would be six cents more expensive per liter. The increase is calculated to bring an extra €934 million into state coffers, the ministry said.

The reforms announced so far have angered powerful labor unions, and civil servants have called a nationwide strike Wednesday.

The walkout will affect state schools, hospitals, tax offices and local government offices, while all Greek airports will be closed to international and domestic flights. Private sector workers will walk off the job on Feb. 24 in a separate strike.

Papandreou called on the unions to show restraint.

“We must all change, or we will all sink together — and we will not let the latter happen,” he said in Parliament late Monday.

Some experts have said Greece could need a bailout — but EU and Greek leaders are resisting the idea, and Athens insists it can weather the storm alone and that its measures will bring its deficit back to below the 3 percent mark by the end of 2012.

The EU’s government-backed lender, the European Investment Bank, said Tuesday it cannot bail out Greece or any other European country that can’t pay its debts.

The EIB said it could “only finance economically viable projects” and that its rule would not allow it help an EU nation cover a budget deficit. The bank funds projects agreed with European Union governments, such as research into more fuel-efficient cars or infrastructure for poorer EU nations. It has €75 billion to lend this year.

Associated Press Business Writer Aoife White in Brussels and AP writer Elena Becatoros in Athens contributed to this story.