Greece agrees to slash workforce in exchange for extra €8bn EU cash
The Greek cabinet has approved a contentious plan to lay off state workers, and signed off on a draft of next year's budget, in a race to slash spending, free up bailout loans and stave off bankruptcy.
Without the release of an €8bn tranche of an EU bailout, massively indebted Greece could run out of money to pay state wage bills within weeks.
European officials are scrambling to avert a Greek debt default, which could wreck the balance sheets of European banks, damage the prospects of the euro single currency and possibly plunge the world into a new global financial crisis.
Yesterday, British Prime Minister David Cameron warned Europe that it must urgently fix its banks and deal with its debts, warning that the eurozone crisis risked harming Britain's economy and stunting global growth.
Speaking on the opening day of his Conservative Party's annual conference, Mr Cameron said that he would stick to his coalition's deficit-cutting plans despite signs that the British economy is stalling. He also said Britain must remain part of the European Union, disappointing right-wingers in his party who see the continental crisis as a chance for an abrupt end to four decades of closer integration with EU partners.
Any prolonged economic crisis in the rest of Europe, the UK's main export market, would hurt Britain when the government is trying to rebalance a struggling economy by increasing the sale of British goods and services overseas.
"The eurozone is a threat not just to itself but also a threat to the British economy and a threat to the worldwide economy," Mr Cameron said.
Negotiators from the IMF, the EU and the ECB, known as the troika, have been combing through Greece's budget and reform plans since last week.
To persuade the troika to release the loans, Greece has promised to raise taxes, cut state wages and accelerate plans to reduce the number of public sector workers by a fifth by 2015.
The inspectors are widely expected to give a green light to the release of the aid to avoid dragging the eurozone even deeper into turmoil.
But all eyes will be on their forecasts for 2012-2014. If the inspectors conclude that Greece's recession will continue to be worse than predicted, EU officials have suggested that banks that agreed to write off 21pc of the value of Greek debt in July may be forced to take more pain.
The budget figures will indicate whether forecasts need to be revised. The government has been falling behind an ambitious deficit target of 7.6pc of GDP for 2011, partly because of a deeper-than-expected contraction of the economy.
The austerity measures are deeply unpopular, and public sector unions hope that strikes and demonstrations can wreck the socialist government's resolve to enact them. Striking civil servants have disrupted the talks with the troika over the past days by blockading ministries.
The government has a majority of just four seats in parliament and could be forced into elections if a handful of lawmakers balk. But disgruntled legislators have toed the party line over the past weeks and analysts expect them to continue to do so and pass the new austerity package. (Reuters)