Greece austerity: How far still to go?

Pharmacy in Athens The cuts include limiting the profits that pharmacies make from drugs

Greece is racing against time to enact profound changes to its economy, so as to reduce its debt mountain, clean up its public finances and avoid having to quit the eurozone.

These changes are dictated by tough and controversial conditions set by the EU and IMF in return for two massive bailouts. The first, agreed in May 2010, totalled 110bn euros (£89bn; $139bn). The second, in March this year, totals 130bn euros.

So what progress has Greece made with these austerity reforms and what still needs to be done?

Greek economic reforms - the story so far

Area for savings What achieved? What targets?

Sources: Greece Memorandum with EU and IMF; European Commission report on Greek reforms

Deficit reduction

Cutting the government's budget deficit is vital to restore confidence in the economy and encourage investment.

Overall deficit cut from 15.7% of GDP (total output) in 2009 to 9.2% in 2011. That was done despite the Greek economy shrinking by more than 11% over the same period.

The goal is a budget surplus of 4.5% of GDP by 2014 - a level which, if sustained, could bring down the debt mountain.

Privatisation

Large-scale privatisation of state assets is seen as crucial for Greece to replenish state coffers and attract foreign investment.

"Slower than planned" is the European Commission's judgment. There has been little market appetite for Greek assets. Greece now has a list of enterprises, land holdings and bank assets to be privatised. They include ports, airports, motorways and energy infrastructure.

The bailout Memorandum agreed with the EU and IMF in March this year sets a target of 50bn euros in proceeds from privatisation. That total will not be reached before 2015.

Some big asset sales are planned for this year. But administrative obstacles are still delaying the sales.

Labour market reforms

Described as "structural" - not quick fixes, but they should make a big impact over time. The goal is to make the Greek economy competitive again.

Legislation adopted to reduce minimum wage by 22%, to about 600 euros a month.

There are new limits on wage bargaining and to prevent costly arbitration over wages.

In the state sector, for every new worker hired at least five must go.

Greece has already suspended 30,000 civil servants on partial pay.

The EU says "rigidities" in wage-setting helped push up unemployment, now at a record 22.6%. More flexible hiring and firing would especially help young people get jobs, it is argued.

The government pledged to cut its wage bill by 1.5% of GDP by 2015. That means cutting 15,000 public sector posts this year - part of a plan to cut 150,000 posts in total.

Greece plans to liberalise 20 service sector professions seen as too protectionist.

Tax reform

A priority because Greece has especially low tax collection compared with its EU partners. For many years non-payment of taxes has been widespread.

The European Commission says the fight against tax evasion has been "far too timid". Little achieved so far.

Parliament will vote on a package of tax reforms this year. They will eliminate various tax exemptions and simplify the sales tax (VAT), income tax and property tax systems.

The Memorandum says the whole public revenue administration needs to be modernised.

Measures planned include: centralising collection of large tax debts; closing 200 inefficient local tax offices; hiring 1,000 new state auditors.

Banks

Measures are being taken to shore up Greek banks, which are burdened with bad debts. Many are too weak to support business effectively - and that delays any return to growth.

The banking system depends on the EU/IMF credit lifeline - Greek banks remain shut out of international lending markets.

The Memorandum says the cost of recapitalising Greek banks will be about 50bn euros. That will be funded from the bailout.

The Bank of Greece (central bank) will do an audit of each bank, to see if it is a viable business. They will have minimum capital requirements - those that fail to raise sufficient capital will be wound up.

Government spending

The level of Greek spending on welfare benefits is far above the euro area average, the Memorandum says. The plan is to cut total government spending by 480m euros in 2012 alone.

Public sector hiring has been frozen, to shed thousands of jobs, including teaching posts.

Families with annual incomes above 45,000 euros, apart from those with five or more children, no longer get family allowances.

Healthcare is a major cost in the Greek welfare system. There is now a drive to promote cheaper medicines and combat waste in healthcare. Profit margins for pharmacies will be brought below 15%, partly by setting a ceiling on the price of generic drugs.

Pensions

A large portion of total government spending.

There have been several pension cuts in 2010-12, with high earners facing the biggest reductions. In 2010 a far-reaching reform simplified the pension system, raising the retirement age and reducing benefits. Those entitled to a monthly pension above 1,700 euros have to pay an extra contribution. There have been efforts to fight fraud in disability pensions and other pensions.

The Memorandum aims for a further cut of 300m euros this year in pension costs.

The official retirement age used to be 58 - early compared with most Europeans, though in practice many Greeks continue working into their 60s.

An official retirement age of 65 is being phased in, to cut pension costs.

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