Greece on Monday decided to take 6 billion euros ($8.4 billion) worth of new, emergency fiscal measures to shrink its budget hole and jump start privatizations to convince lenders it can pay down debt without a restructuring.
Policymakers in Brussels and the European Central Bank are piling pressure on Athens to redouble its efforts to cut deficits and push reforms to fix the economy's woes after falling behind targets set in its 110-billion-euro bailout plan.
During a marathon meeting that lasted more than seven hours, Prime Minister George Papandreou and his cabinet went over a raft of new austerity measures, including deeper cuts in public sector wages, more consumer tax increases and even the taboo issue of dismissing full-time civil servants.
The cabinet today reaffirmed its determination to continue with the fiscal consolidation program by taking additional measures of 2.8 percent of GDP to achieve the 7.5 percent deficit target for 2011, Finance Minister George Papaconstantinou said.
Details of the mid-term fiscal plan will be spelled out after EU, IMF and ECB inspectors conclude a performance review. Papandreou will hold meetings with leaders of the political opposition on Tuesday, seeking to build consensus on the effort.
First in line in the government's 50 billion euro ambitious privatizations program to pay down its mountain of debt will be divestments in Hellenic Postbank, OTE Telecom and the country's two biggest ports.
The government also plans to exercise a put option to sell a remaining stake in OTE to Deutsche Telekom.
Athens expects to raise 3.5 billion to 5.5 billion euros from privatizations this year, including its entire 75 percent stakes in Piraeus and Thessaloniki ports and the Thessaloniki water company.
To accelerate the process, the creation of a sovereign wealth fund composed of privatization and real estate assets was also decided, Papaconstantinou said.
The plan calls for a second phase of privatizations next year, including a 34 percent stake in gaming firm OPAP, up to 17 percent of Public Power Corp and 25 percent in ATEbank. The government is projecting proceeds of 4.0 to 6.0 billion euros in 2012.
Earlier on Monday, Papandreou told ministers there should be no stepping back from the painful steps that must be taken to secure continued emergency funding and more aid to come out of the debt crisis.
At stake is a tranche of 12 billion euros in aid under the EU-IMF bailout agreed last year as well as additional loans needed to plug a funding gap in 2012 as the heavily-indebted country is unlikely to return to bond markets next year.
Without the next loan installment, Greece will not be able to honor its obligations or pay wages and pensions, its finance minister told Skai TV late on Monday.
The IMF has made absolutely clear that it cannot disburse (the tranche) if it does not have any guarantee that next year, if necessary, Greece will have (funding) support from the Europeans, Papaconstantinou said.
With tough austerity measures to quickly correct past profligacy knocking the wind out of Greece's economy, markets expect some form of debt restructuring is inevitable. But such a move would be anathema to policymakers, especially at the ECB.
Instead, Frankfurt and Brussels are urging strict compliance with the bailout plan, meaning state divestments, reforms and more measures to shore up budget revenue and lower the government's wage bill.
EU Economic and Monetary Affairs Commissioner Olli Rehn continued to press Athens to step up its fiscal efforts and press on with privatizations.
These are a matter of urgency, Rehn told a conference on European integration in Vienna.
Rehn also said maturities on Greek debt could be extended on a voluntary basis if this does not create a credit event -- an assessment by bond market representatives of the bondholders' treatment that would trigger insurance payouts on sovereign debt and downgrades by credit rating agencies.
Belt-tightening to get Greece into a primary surplus is crucial to stem its ballooning debt, but critics, including the conservative opposition, say the policy mix is wrong, hindering the economy from growing out of the mess.
Greek media reported the earlier cabinet examined steps such as halving a current 12,000-euro income tax exemption, cuts in exemptions on medical expenses and interest on home loans, moves certain to cut real pay for millions of workers and pensioners.
Other measures may include slapping a one-off levy on high incomes, possibly on those earning more than 80,000 euros annually, and a tax on large real estate holdings.
The government is also considering a uniform value-added tax rate of 18 percent or 19 percent for all goods and services versus a current regime that ranges from 13 percent to 23 percent.