Creditors spell out further Greece austerity

[February 14, 2012]  BERLIN (AP) -- Greece's international creditors on Tuesday spelled out the austerity measures promised by Athens that have to be put into practice before it can receive new bailout cash, according to a document obtained by The Associated Press.

Implementing these so-called "prior actions" is key for Greece to secure a second, euro130 billion bailout, without which it would forced into a disorderly default on its debts by the end of March. The measures are already part of a large austerity package that lawmakers in Athens passed over the weekend amid riots and violent protests.

However, Greece over the past years has often failed to implement promised reforms and spending cuts. This time, the country's international creditors -- the other 16 countries that use the euro and the International Monetary Fund -- want to see tangible results before transferring any more money.

They stipulate, for example, that Greece must cut pharmaceutical spending by another euro1 billion ($1.32 billion), slash another euro300 million from its defense budget and reduce central government and election-related spending by euro270 million.

Also, the government must slash its public investment budget by euro400 million, to be achieved "through cuts in subsidies to private investments and nationally financed investment projects," according to the document.

Moreover, as first outlined last week, Greece will have to cut its budget by a further euro325 million to meet its debt reduction targets through "additional structural spending cuts" to be identified by the creditors and the government in Athens at a later, unspecified date, the document said.

The prior measures are spelled out in a draft of the Memorandum of Understanding that the finance ministers of Greece and the rest of the 17-country eurozone are expected to sign at their meeting Wednesday. The memorandum forms the legal basis of international bailouts, detailing cuts and economic reforms the bailed-out country has to implement in return for the money.

Greece won't have much time to implement the prior actions. With billions of its bonds due late next month, Greece faces bankruptcy unless it receives more international assistance.

Greece has been shut out of long-term debt markets since 2010, and is surviving on an initial package of euro110 billion in rescue loans from its international creditors since May that year. But harsh austerity measures demanded in return for the emergency loans have hammered the economy, which is in decline since late 2008, with successive quarterly contractions since then, with the exception of the first quarter of 2010.

Fresh figures showed Tuesday that the country's economy shrank 7 percent in the fourth quarter compared with a year earlier.

[Associated Press; By JUERGEN BAETZ and GABRIELE STEINHAUSER]

Steinhauser reported from Brussels and Elena Becatoros in Athens contributed to this report.

Juergen Baetz can be reached on Twitter at  http://twitter.com/jbaetz.

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