EXCLUSIVE - Greece to revive public servants dismissal plan - sources

ATHENS Thu Aug 9, 2012 8:17pm IST

A woman raises a Greek flag during an anti-austerity rally in front of the parliament in Athens February 19, 2012. REUTERS/Yiorgos Karahalis/Files

A woman raises a Greek flag during an anti-austerity rally in front of the parliament in Athens February 19, 2012.

Credit: Reuters/Yiorgos Karahalis/Files

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ATHENS (Reuters) - Greece will revive the labour reserve measure targeting 40,000 public servants for eventual dismissal, determined to achieve the 11.5 billion euros in savings it promised international lenders, government officials said on Thursday.

The government's economic team will present details of the plan, once a political taboo in Greece, to the political leaders supporting the ruling coalition as the only way to convince international lenders to keep cash-strapped Greece afloat.

"The labour reserve plan will go ahead this time," one senior government official told Reuters on condition of anonymity. "Last time, it just didn't happen."

Athens pledged last year to gradually lay off 30,000 civil servants from an estimated 700,000 public sector employees as part of its bailout deal.

Under the failed plan implemented by the previous socialist government, the 30,000 civil servants were supposed to be placed in a "labour reserve", where they would receive 40 percent of their salaries for a year before being laid off. Only 6,500 left, mainly through retirement.

Greece has repeatedly fallen behind targets agreed with its lenders, fanning anger among euro zone partners who have threatened to cut it loose from a 130 billion euro bailout deal unless they see results soon.

"This is a measure that may not produce dramatic and immediate savings but it will give credibility to all our efforts to reform," said a second official who did not want to be named.

Cuts to ministries spending, already brought down to a minimum during two years of adjustment in the wake of the debt crisis, and merging of state entities will bring in about 4-5 billion euros in savings.

The bulk of cuts will come from another round of reduction to state salaries, pensions and benefits, as they make up two thirds of the government's 82 billion euros of annual spending, excluding interest payments, the officials said.

The government also plans to let go of tens of thousands of temporary contract workers by streamlining its needs across ministries and state entities, the officials said.

SCRAMBLING FOR CUTS

Although the political leaders have agreed the cuts in principle, Finance Minister Yannis Stournaras said earlier this week that the labour reserve issue was being examined because the government was still 3.5-4.0 billion euros short of reaching its 11.5 billion cuts target, sparking protests.

The issue is expected to be the most controversial. The Greek constitution bars firing civil servants and no political party has dared so far to directly dismiss staff in the bloated and ineffective state sector.

The two leftist parties supporting the conservative-led government of Prime Minister Antonis Samaras have strongly objected to the measure, saying they must stay true to their pre-election pledges.

"I'm categorically against the labour reserve," said Democratic Left leader Fotis Kouvelis after party leaders met to discuss the issue on Tuesday. "It proved a fiasco and I can't support a fiasco."

Samaras has backed his technocrat Finance Minister Yannis Stournaras, saying he would examine all options necessary to find the savings and hinting the labour reserve measure would not be applied in the same way as the previous time.

"We must find the 11.5 billion euros because without them, there will be no next aid tranche," the second government official said, signalling the urgency of keeping Greece on the bailout cash drip would bend any resistance.

Labour experts say the reserve measure failed last year because large sections of the civil service such as doctors, nurses and teachers were excluded, many opted to retire early rather than be forced out, and some state organisations refused to cooperate by not giving data about their staff.

Unemployment has shot up to a record 23.1 percent in May amid the worst recession in decades, with GDP seen shrinking by about 7 percent this year, but the axe has fallen more heavily on the private sector, where officials estimate a third of workers are jobless.

One way to convince political partners to approve the cuts, which must be presented to the so called troika of IMF, EU and ECB inspectors this month, is to make them as socially just as possible, officials said.

For example, benefits should not be cut across the board but adjusted according to income. Financial aid intended for the poor is now going to some people who may have small pensions but earn substantial income from other sources.

The measures will be finalised this month and sent to the troika ahead of their next inspection visit, expected to begin at the end of August.

Deputy Finance Minister Christos Staikouras told Greek media he expected Athens to get the next tranche of international aid right after a final verdict on its bailout programme in mid-September.

To cover a cash squeeze and to pay a 3.2 billion euro government bond that matures later this month, Greece plans to issue additional treasury bills, enabling it to access up to an extra 4 billion euros of funds.

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