Greece passes landmark austerity budget

The country now waits on its creditors to save it from imminent bankruptcy.

Greek Protester
A Greek protester walks amid tear gas during last week's demonstrations in Athens. Photo: Getty

After days of fierce parliamentary debate, Greek lawmakers pushed through the country’s 2013 austerity budget early on Monday; an essential move to unlock the vital bailout funds needed for Greece to avert imminent bankruptcy.

The budget – approved by a 167-128 vote – includes €9.4bn worth of austerity measures, including tax hikes and across-the-board cuts to pensions, public salaries and social benefits. The retirement age will increase by two years to 67.

The net effect on Greek debt will see the annual budget deficit tapering to 5.2 per cent of GDP, down from this year’s figure of 6.6 per cent. The budget follows the news that Greece is currently on target to reduce its budget shortfall, with the deficit narrowing by an impressive 42 per cent so far this year.  

Nevertheless, Greece’s mountain of debt is forecast to hit a whopping 189 per cent of GDP in 2013 (€346bn), a figure far beyond the International Monetary Fund’s (IMF) “sustainable” rate of 120 per cent of GDP.

Despite the austerity budget passing through Parliament relatively successfully, the government faces more hurdles before it has access to the €31.5bn rescue package.

Disbursement of the next tranche is subject to a “progress report” from the so-called troika – the European Commission, the IMF, and the European Central Bank.

After eurozone financial ministers met in Brussels today to discuss the next installment, Eurogroup chief Jean-Claude Juncker revealed that there had been “no definitive decision” over the funds, despite positive signs.

On Sunday, Prime Minister Antonis Samaras called for Greece's creditors to uphold their end of the bargain.

Just four days ago, we voted the most sweeping reforms ever in Greece. Greece has done what was asked of it … and now it is time for creditors to do what they have promised.

Finance Minister Yannis Stournaras emphasised the importance of speedy disbursement, as Greece fast approaches the €5bn worth of treasury bill repayments on Friday that will likely plunge the country into immediate bankruptcy. He added:

Without the help of the European Central Bank, the refunding of these treasury bills from the banking system will lead the private sector to complete suffocation.

Even if Greece receives the payment, the economy will still face profound challenges. The newly announced austerity package – which was preceded by a separate raft of tax hikes and spending cuts earlier in the week – could further paralyse the economy. Greece is headed for a GDP contraction of 4.5 per cent next year, which would be in sixth year of recession.

Currently, more than a quarter of Greeks are unemployed, with 60 per cent of under 24-year-olds unable to find work – both record highs. The latest austerity measures, which will slash 10,000 public sector jobs in 2013, will no doubt contribute to the widespread malaise and uncertainty that have stultified potential recovery.

The gloomy economic outlook has no doubt been compounded by a rising tide of social unrest in the country, with violence engulfing Athens last week as 80,000 demonstrators battled with riot police after anti-austerity protests turned ugly.

Whilst the 15,000 protesters that gathered outside Parliament on Sunday were largely peaceful, they were no less opposed to the latest measures. In an opinion poll published in Greek newspaper To Vima, 66 per cent of the population opposed the latest budget.

These social reverberations have had a far-reaching effects on Greece’s shifting political landscape as well. A recent To Vima poll revealed that Greece’s leftist party – Syriza – which opposes the bailout, has recently become the nation’s most popular party. If elections were held today, 23.1 per cent of respondents would back Syriza, whilst the incumbent New Democracy party would only garner 20.4 per cent of the vote.