In Leaked Memorandum, Lenders To Greece Take Hard Line On Austerity Cuts

If the “troika” of international institutions bankrolling Greece’s bailout has its way, some 150,000 Greeks will be dismissed from their jobs over the next two years, including 10 percent of all physicians and essentially all of the country’s tax collectors. The €700 ($905) national monthly minimum wage would be phased out sometime next year as well.

And those quaint Christmas and Easter pay bonuses that make up nearly 15 percent of the average Greek’s yearly take-home pay? Gone.

Those were only three of the measures the Greek government appears to have accepted this week, in what appear to be some of the most painful austerity measures imposed on any country during the nearly four-year-old European fiscal and sovereign credit crisis. Athens had been negotiating with its creditors for weeks now, after having missed previously agreed-upon fiscal consolidation targets, as to what reforms the country would need to accept in order to receive the next tranche of bailout funding.

It was almost a foregone conclusion that the government would accept most of the demands of the European Union, the European Central Bank and the International Monetary Fund, as the troika is known, and that it would do nearly anything to avoid bankrupting the national treasury and the nearly certain political and economic collapse that would entail.

But it is now clear the troika pushed the Greeks to their wits’ ends.

"The unacceptable demands by the troika are not going to give any fiscal benefit and will only lead to a further rise in unemployment," Fotis Kouvelis, whose Democratic Left party is part of the governing coalition that was negotiating with the troika, said in Athens Tuesday, suggesting that his party would not support the deal.

Evangelos Venizelos, of the much larger Pasok party, also expressed his dismay at the severity of the final memorandum.

"Our partners must understand we are not a protectorate," Venizelos said.

Among the issues that caused the biggest stir, according to various reports, were requirements that severance and maximum-working-hour provisions written into the country’s laws be weakened.

Also receiving pushback from the Greeks: new rules that would set aside a percentage of the country’s sales tax into segregated pots meant to service debt payments should Greece fall short on its commitment again.

It seems, however, that even the issues that weren’t controversial in high-level discussions are still likely to be so in the streets of Athens and Thessaloniki, as draft documents leaked by Greek financial newspaper Capital show the troika demanding the proverbial pound of flesh from the Greeks.

The headline demand, the reduction of 150,000 employees from government payrolls, will take place gradually, with 5,000 public servants fired over the next five quarterly periods and the rate of layoffs steepening in 2014 and 2015. When the labor carnage is finished, nearly 4 percent of the total number of people currently employed in the country will find themselves without a job.

Other highly contentious requirements being put forward include reforms to the country’s health care system, with the demand that 10 percent of the doctors on staff at government hospitals be laid off in 2013 and that two-thirds of all pharmaceuticals purchased be generic drugs. If those measures don’t achieve required savings, leaked memorandum clauses explain, doctors will then have to ration how much free health care each patient is allowed to have.

Cuts in public employment and public services will be accompanied by lower salaries and higher taxes. Those making over €4,000 per month will see salary decreases of 35 percent, for example. But even people earning a modest €1,000 will have their monthly pay cut by 10 percent.

Designed to capture taxes on farmers and the self-employed, who commonly evade paying them in Greece, new rules and tax schedules will be put forward but, in general, the Greek government will have to “broaden the base.”

Teachers, students and retirees -- recipients of large government outlays -- are specifically targeted in the plan. The number of non-tenured teachers will be slashed by 85 to 90 percent.

Enrollment at government vocational schools will be capped at 500 students, a steep drop from current levels.

The retirement age is being raised by two years. From 2013 on, new retirees will see promised pension payments cut by 26 percent.

Existing retirees will see cuts as high as 15 percent.

Not all the measures discussed in the memorandum have to do with cutting spending or raising taxes. A substantial amount of the reforms being asked of Greece have to do with privatizing public industries or breaking up guild-style rules that prevented people from becoming tourist guides, limousine drivers, stevedores and other professions.

And a lot of them have to do with tackling notorious and widespread government corruption, including the re-structuring of the tax ministry office that will essentially see every tax collector in the country dismissed.

Finance Minister Yannis Stournaras tried to put a brave face on the agreement, telling Greece’s Parliament in a speech Wednesday afternoon that negotiations had been beneficial to Greece, which had “succeeded in lengthening” the time the country had to get its fiscal house in order.

"We've hit a good stretch because without [the agreement and extension] we would have had to take measures totalling €18 billion [in cuts] instead of the €13.5 billion we are discussing today," Stournaras said

The final deal between the troika and Greece still needs to be approved by the rest of the European leadership.