Under intense pressure from lenders to honor its deficit-cutting targets and with a forthcoming installment of its bailout package still up in the air, Greece has decided to adhere to another tax measure it sprang on a weary public last week.
Greece also chose to put off a harder task, streamlining a bloated and inefficient public sector, for 2012. An inner Cabinet meeting Sunday produced no new policies other than a commitment to focus on spending cuts in 2012 and, in the words of Finance Minister Evangelos Venizelos, end up with a "less costly, smaller, better, smarter" public sector.
Before embarking on that mission, the government still must live up to its commitment to achieve its 2011 budget deficit goal of 7.6 percent of gross domestic product. When it became obvious earlier this month that there was a more than euro2 billion ($2.75 billion) shortfall in the budget, Greece's lenders _ the eurozone member countries, the European Central Bank and the International Monetary Fund _ threatened to withhold the sixth installment of a euro110 billion rescue package agreed upon in May 2010.
In a near panic, the government came up the previous weekend with a property tax, to be levied in 2011 and 2012, that is expected to raise enough to plug the 2011 budget hole and help with the 2012 deficit.
The tax was met with strong protests from a public already reeling from salary cuts and the effects of a continuing recession, and there were voices raised for a tax revolt. Since the charge is going to appear in the coming electricity bills, the state electricity utility unionists threatened to block the mailing of the bills. The Communist Party has openly called for nonpayment of the charge.
As Venizelos said Sunday night after the meeting, these reactions led to skepticism among Greece's European partners about whether the government would be able to raise the projected revenue. At the meeting of EU and eurozone finance ministers in Wroclaw, Poland, on Friday and Saturday, Venizelos came under strong criticism and the meeting postponed the decision on the disbursement of the euro8 billion ($11 billion) installment. Speaking to Greek reporters in Poland on Saturday, a clearly concerned Venizelos said that Greece's cash reserves would not last long. They are set to run out in mid-October.
After consulting on the phone with Venizelos, Prime Minister George Papandreou, who was already in London en route to a weeklong U.S. trip to attend the U.N. General Assembly and the IMF annual meeting decided on Saturday to cancel his trip, saying the coming week would be "especially critical." At risk were, and still are, not only the installment from the 2010 rescue package but also a second bailout worth euro109 billion agreed by Greece's lenders last June 21.
The government's decision to go ahead with the property tax was strongly condemned by opposition leader Antonis Samaras, a conservative who has consistently called for lower taxes to jump-start the economy.
"This is no longer milking the cow, this is killing it," Samaras told a news conference Sunday.
In order to shrink the public sector, the government has announced plans to merge existing agencies, abolish others and put tens of thousands of employees on a "reserve" status at 60 percent of their pay.
But the agency mergers have not yet resulted in a single layoff, with employees shuffled from one agency to another: in one case, several employees at the debt-ridden Hellenic Railways have been transferred to public hospitals.
The tactic has left Greece's lenders very skeptical at the government's willingness to shrink the public sector. It now seems that, with its back to the wall and no wiggle room left, the ruling socialists are finally prepared to bite the bullet. But with the constitution expressly protecting civil servants' jobs, the government is looking for ways to go around that obstacle, first by firing contract workers and then tackling the core civil service.