Greece pledges to reform debt-laden state railways, as deficit reduction remains on track

Greece pledges to overhaul loss-making state rail

THESSALONIKI, Greece — The Greek government pledged Friday to radically overhaul loss-making state rail company OSE, as official data showed efforts to cut the country’s bloated budget deficit remained on track, if slightly asthmatic.

Prime Minister George Papandreou said OSE was a major liability, bleeding cash and offering substandard service. The company has run up euro10.7 billion in debts — adding pressure on the Socialist government which remains excluded from bond markets because of sky-high interest rates.

“For years (the state railways) operated as an organization that unfortunately multiplied the country’s deficits, while providing a very poor quality of services,” Papandreou told a cabinet meeting in Thessaloniki.

“This is going to change so that the (deficit) … will stop and for Greece to get high-quality and reliable transport services.”

Papandreou’s transport minister, Dimitris Reppas, said the restructuring will involve slashing employee bonuses and overtime pay, axing loss-making rail services and selling a 49 percent stake in rail operator TrainOSE. Staff will be cut from current 6,300 to 3,800 through transfer offers to other public sector jobs.

Passenger services will also be opened up to private competition.

Papandreou will deliver a keynote speech on the economy Saturday, at the opening of an annual trade fair in this northern port city, with unions organizing protest rallies against his economic austerity plans.

Greece is in the midst of a deepening recession, while laboring to rein in a runaway budget deficit and public debt that brought the country to the brink of bankruptcy in May. That was avoided through emergency loans from the European Union and the International Monetary Fund.

In return for the loans, Papandreou’s center-left government slashed spending, cut pensions and salaries, and hiked consumer taxes, aiming to cut the deficit from 13.6 percent of annual output in 2009 to 8.1 percent this year.

Official data Friday showed Athens remains on track to meet that target, although the rate at which the deficit is narrowing has slowed.

According to preliminary data from the finance ministry, the budget deficit reduction from January to August slowed to 32.2 percent compared to last year, from the 39.7 percent reduction in the January-July period and 45.4 percent in the first six months of the year.

However, the overall performance is better than the 26.5 percent deficit reduction target laid out in the EU-IMF program for the first eight months of the year, and the country is still on target to produce an overall deficit cut of 39.5 percent for the year.

The ministry attributed the slowdown to accumulation of interest payments in July and August — which make up 40 percent of yearly interest payments — and a lag in revenues.

Although covered by a better-than-expected performance in spending cuts, the revenue shortfall has caused concern and the government has been examining ways to boost income, including broadening an increase in sales tax.

The austerity measures face strong opposition from unions which have announced a series of weekend demonstrations in Thessaloniki. Past protests have turned violent, and some 4,500 police have been deployed to keep the peace — although a police union is planning a protest of its own later Friday against pay and funding cuts.

Minor scuffles broke out between riot police and protesting firefighters near the venue of the Cabinet meeting Friday, while railway workers and left-wing unionists also held demonstrations.

Railway unions held strikes this week and are threatening more walkouts.

Greece’s finances remain under intense EU and IMF scrutiny, and successful implementation of the cutbacks and structural reforms remain a condition for continued release of the loans, set to reach a total euro110 billion ($144.5 billion) over the next three years.

The country is due to receive its second installment of loans next week.

Also Friday, the statistics agency said Greece’s unemployment rate fell slightly to 11.6 percent in June from 12 percent in May, but was still well above the 8.6 percent seen a year ago, before the debt crisis.

Separately, the debt management agency said it will auction euro900 million worth of 26-week treasury bills next Tuesday, in the first of a string of monthly short-term debt issues that replace quarterly sales.

However, the interest rates demanded on the market for longer-term 10-year government bonds remains prohibitively high, and Athens can only tap the markets for small amounts and shorter-term loans.

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Associated Press Writers Elena Becatoros in Athens and Costas Kantouris in Thessaloniki contributed to this story.