Greece said it would deepen pension cuts, extend a painful property tax hike and put tens of thousands of workers on notice on Wednesday to secure a new injection of aid and save the country from bankruptcy.
With public anger high over a belt-tightening campaign that is driving the country into a fourth year of recession, the powerful labor unions and public transport workers announced strikes starting on Thursday in opposition to the measures.
After the so-called troika of inspectors from the European Union and International Monetary Fund made clear it was losing patience over the failure by Athens to meet the fiscal targets of its bailout, the cabinet agreed to front-load the measures to comply with the program through 2014.
These choices are sending a message to markets and our partners that Greece wants to and can fulfill its obligations and remain firmly in the very core of the euro and the European Union, government spokesman Ilias Mossialos said.
Financial players are almost certain Greece will default, an event economists and policymakers fear could set global markets tumbling and push other vulnerable euro zone members like Italy and Spain over the edge, potentially splitting the currency area.
But they see little chance the troika will deny Athens its next 8 billion euro ($11 billion) aid tranche before the euro zone strengthens its EFSF safety net designed to limit contagion.
The troika team is expected to return to Athens early next week to complete their review
The cabinet agreed to cut pensions amounting to more than 1,200 euros ($1,642.913) a month by 20 percent and further reduce payments for former state workers who had retired before the age of 55.
It will extend a new real estate tax hike originally slated to expire next year until at least 2014. It will also put 30,000 civil servants in labor reserve this year, reducing their pay to 60 percent and giving them 12 months to find new work in the state sector or lose their jobs.
Analysts said the steps signaled a realization in the government, which has struggled against public anger and resistance in its own ranks to implement its pledged reforms, that it had to show it was serious about cutting costs rather than trying to raise revenue with one-off tax cuts.
The measures announced today show determination on behalf of the Greek government to speed up fiscal adjustment, Nikos Magginas, an economist at National Bank. The should satisfy the troika's demands for permanent measures aimed at spending cuts.
AUSTERITY STEPPED UP
A few thousand protesters rallied in Athens' central Syntagma square in front of parliament against the new austerity measures.
I've been honestly working for 25 years, said 49-year old public sector employee Sofia Vardaki. They have no right to throw me out now. I don't want to sit on my couch doing nothing. I want to work.
While the government needs the loan tranche to avoid running out of cash next month, it has met staunch resistance from workers, and the public transport unions planned to shut down taxis, trains, buses and the metro on Wednesday.
One of Greece's biggest unions planned a 3-hour work stoppage against education reform, while it agreed with another -- together they represent some 2.5 million workers -- to strike for two days on October 5 and October 19 to protest cost cuts.
We will fight to the end, to topple this policy, Ilias Iliopoulos, general Secretary of public sector union ADEDY, told Reuters on Wednesday.
The troika (EU and IMF) and the government must go.
The strikes represent the first big nationwide protests since early summer, when daily demonstrations culminated in violent clashes after weeks of unrest.
The country remains bitterly divided between private sector workers who say a bloated state bureaucracy is strangling Greeks and public servants who say the biggest problems are political corruption and tax evasion.
Under Greece's so-called mid-term plan, it has agreed to cut its fiscal gap to 1.2 percent of gross domestic product by 2015, from an estimated 8.5 percent or more this year, to help pay off debt expected to exceed 165 percent of annual output.
The new taxes, plus job and pension cuts, have helped push youth unemployment to 40 percent and hammered small business owners. Some 800 demonstrators rallied in central Athens on Wednesday to protest against new public layoffs.
Yes, maybe we lived a life bigger than we could afford. And we wouldn't object to these sacrifices if we knew they would get us somewhere. But there is no way out, said public sector worker Fragoulis Krokos, 47. There is no end to this slide. If I could, I would leave the country now.
The conservative opposition, which has a slim lead over Prime Minister George Papandreou's Socialists in opinion polls and has called for snap elections, maintained its refusal to cooperate with the government, which has irked EU leaders.
Opposition New Democracy party spokesman Yiannis Michelakis said, criticised the tsunami of unfair and unbearable measures and criticised Papandreou and his finance minister, Evangelos Venizelos, for lacking the courage to announce the measures themselves.
Mr. Venizelos did not dare announce them this time and of course neither did the prime minister, who has been nowhere to be seen all this time, he said.
(Additional reporting by Ingrid Melander and Harry Papachristou; Writing by Michael Winfrey; Editing by Michael Roddy and Paul Taylor)