STELIOS BOURAS - COSTAS PARIS: Greek Officials Scramble to Find More Cuts

ATHENS—Greece's Socialist government is scrambling to cut public spending after receiving stark ultimatums from euro-zone governments that further rescue money will be withheld if Athens doesn't deliver on promises to reduce its budget deficit.

The government now is looking at unprecedented public-sector layoffs and cuts in civil-service perks, steps that could reshape Greek political culture by upending decades of cozy ties between the ruling Socialist party and a core constituency.

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Associated Press

A subway entrance in Athens' Syntagma Square was closed on Wednesday during a work stoppage.

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Pressure has been turned up on Greece after talks with visiting international inspectors were abruptly suspended last week when it was discovered that the country would overshoot the limit set on its budget deficit for this year. Inspectors demanded that Athens cover the gap before they approve the release of the next €8 billion ($11.2 billion) installment of its bailout program organized last year.

Senior European policy makers, including German Finance Minister Wolfgang Schäuble, warned this week that Greece won't get its next rescue-loan tranche unless the conditions attached to aid are fulfilled to the letter.

Without the aid, Greece is expected to run out of money within weeks, say senior Greek government officials.

Talks with inspectors from the International Monetary Fund, European Union and European Central Bank—the so-called troika—are due to resume next week.

Greece's government had refused to enact even further austerity measures in the face of a deepening recession and growing voter anger. But the hard line taken in Berlin and by the troika inspectors has forced Athens to soften its defiance, say officials.

"Given that the next tranche was in doubt and facing the grim reality of running out of cash in about 25 days, the government's room for maneuver is extremely limited," said a Greek cabinet minister. "I expect that the next meeting with the troika will be successful and the September tranche will be released in time."

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The troika has demanded another €1.7 billion in cuts this year and an end to Greece's delays in overhauling its economy. Greece must come up with new cuts or speed implementation of previous reform promises. Either way, Prime Minister George Papandreou's Socialist party now faces its biggest political challenge since the start of the debt crisis in 2009.

The Socialist, or Pasok, party has counted the civil service as a core constituency dating back to its early years in power in the 1980s. Pushing forward with layoffs in the public sector while further slashing civil-service perks and benefits already has drawn the ire of Greece's public workers' union.

"What we will see in the next few months will be the hardest period for Prime Minister George Papandreou since being elected" in October 2009, said Anthony Livanios, an independent political analyst. "Resistance is coming from Pasok members who are seeing their political clientele being hurt, and from public-sector workers."

Officials say deep cuts in the government payroll must now make up for the government's stalled privatization program, which was supposed to raise €5 billion from the sale of state assets by the end of this year.

Greek officials say the privatization target isn't achievable.

Write to Costas Paris at costas.paris@dowjones.com
ΠΗΓΗ: Wall Street Journal http://online.wsj.com/article/SB10001424053111903285704576556162077324344.html?mod=WSJ_hp_us_mostpop_read