Greece sharpens austerity; IMF warns on banks

Wed Sep 21, 2011 7:36pm EDT
 
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By George Georgiopoulos and Lesley Wroughton

ATHENS/WASHINGTON (Reuters) - Greece adopted yet more austerity measures on Wednesday to secure a bailout installment crucial to avoid running out of money next month, as the IMF warned that Europe's sovereign debt crisis risks tearing a giant hole in banks' capital.

The Greek cabinet agreed to cut high pensions by 20 percent, put 30,000 civil servants in a "labor reserve" on a road to redundancy, lower the income threshold for paying tax and extend a real estate tax, a government spokesman said.

"The measures taken today allow us to comply with the bailout plan through 2014," the spokesman, Ilias Mossialos, said.

The new package is designed to ensure Greece gets an 8 billion euro rescue loan vital to pay state salaries and bills in October. Senior European Union and International Monetary Fund officials are to arrive in Athens early next week to review progress, Mossialos said.

Greece is on the front line of the euro zone debt crisis that has engulfed Ireland and Portugal and now threatens Italy, Spain and some of Europe's biggest banks, risking plunging the West back into recession.

BANK EXPOSURE

The International Monetary Fund on Wednesday said the crisis had increased European banks' exposure by 300 billion euros, and they need to recapitalize to ensure they can weather potential losses.

"Risks are elevated and time is running out to tackle vulnerabilities that threaten the global financial system and the ongoing economic recovery," the IMF said in its Global Financial Stability Report.   Continued...

 
<p>Greece's Finance Minister Evangelos Venizelos waits for documents to be handed to him as he leaves a parliament session in Athens September 21, 2011. REUTERS/Yiorgos Karahalis</p>