Austerity Measures: Where the Axe Will Fall in Greece

The Greek government on Wednesday voted to approve highly divisive austerity measures that have led tens of thousands of people to take part in heated street proteststhis week. With its radical savings program, the government in Athens hopes to save close to 80 billion euros. SPIEGEL ONLINE provides an overview of the plans.

Employees of Hellenic Postbank, one of the Greek state assets that will be sold off under the government's privatisation plans, protest in Athens on May 30. Zoom
DPA

Employees of Hellenic Postbank, one of the Greek state assets that will be sold off under the government's privatisation plans, protest in Athens on May 30.

Mid-term budget planning. The term may sound harmless, but it contains plenty of explosive material in Greece.

The term refers to the austerity measures approved by the Greek parliament on Wednesday, which include painful cuts to public spending and tax increases. Prime Minister George Papandreou is seeking to impose cuts of a total of €78 billion ($112 billion) by 2015. Additional government revenues of €6.5 billion are also planned this year through increased taxes and other levies. Between 2012 and 2015, a further €22 billion in additional revenues are also expected to be added to government coffers.

Greece's new finance minister, Evangelos Venizelos, has described the new measures as "hard and unfair," but also unavoidable. The coming tax increases and cuts to social services will hit average citizens particularly hard.

SPIEGEL ONLINE provides an overview of the most-important points:

Taxes: Property taxes will be increased as well as sales tax for restaurants and bars along with non-alcoholic drinks and natural gas. A luxury tax for yachts, swimming pools and cars will also be increased. In addition, a "solidarity levy" will be introduced on households, ranging from between 1 and 5 percent of income. In parallel, the government also wants to scrap a string of tax exemptions. This year alone, the government in Athens is hoping to increase tax revenues by €2.45 billion. A stepped-up effort to fight tax evasion is also expected to bring in €878 million in additional revenues in 2013.

Wages: The government has already cut civil servants' wages, allowances and pensions several times. By 2015, the number of employees in the public sector is now to be reduced by 150,000, with the remaining staff working longer hours. In addition, they will be permitted to work part-time or take unpaid vacation in the future. Contracts for half of the government's temporary workers will not be renewed.

Social services: The assets of people receiving social benefits are to be reviewed, and cuts are to be made to a number of services in order to save the government €1 billion this year. In the next two years, the savings volume is also expected to be in the billions.

Defense: Up until now, Greece has invested around 3 percent of its GDP in defense -- the second highest level of spending in NATO as a proportion of GDP -- mainly because of tensions with its neighbor and fellow NATO member Turkey. Next year, Athens will slash €220 million from its defense budget. Annual cuts of €333 million will be made from 2013 to 2015.

Health system: Greek hospitals were previously regarded as a hive of mismanagement. Now cuts of at least €310 million will be made in the health sector in 2011. A further €1.43 billion will be cut by 2015 through measures such as reducing government-regulated prices for drugs.

Investments: The state wants to invest less. In 2011, €700 million less will be invested.

Privatization: Greece's most ambitious, but also riskiest plan, involves the privatization of state property. The list of assets to be sold includes the water utilities Athens Water (EYDAP) and Thessaloniki Water (EYATH), the publicly listed bookmaker OPAP, the Hellenic Postbank and the ATEbank and the telephone company OTE. It is debatable, however, whether Greece will manage to receive fair prices for these companies, given its current circumstances.

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