Salaries, Pensions Not Excluded from Automatic Spending Cuts in Greece

1Wages and pensions are not excluded from the automatic spending cuts the Greek government is obligated to make if it fails to reach fiscal targets in 2017.

Greece has proposed to its lenders a mechanism that would automatically cut state spending if budget figures in April 2017 do not meet the required target, based on the annual Eurostat report. This is to replace a packet of contingency measures creditors have proposed.

So far the Greek administration was promising that wages and pensions in the public sector would be excluded from the mechanism. However, the omnibus bill that was tabled in parliament on Wednesday include wage and pension cuts.

If the Greek budget has diverted from the target, the mechanism would be activated by the Finance Minister on May 31. Then state expenditures will be cut, including wages and pensions.

Specifically, the provisions of the bill provide that if there are deviations from the budgetary target they will be announced by the Hellenic Statistical Authority (ELSTAT) and will be validated by Eurostat. Then the Minister of Finance by May 10 will draw up a report that will:

• Determine the possible negative deviation from budgetary targets

• Indicate the measures and will calculate the total amount by which the budget execution should be limited to the current financial year

• Assess the percentage of GDP in the fiscal impact of the adjustment measures to be taken on the general government budget revenue

The report will be published in the Government Gazette and will be sent to the European Commission.

There are 10 categories of benefits, subsidies and overall welfare expenditures that are excluded from the “cutter,” as the mechanism has become known. Also excluded are cuts in the health, education, transport and energy sectors.

The cutter will apply until 2019.