New Greek Budget Calls For More Cuts, Tax Hikes

The Greek government passed a 2013 budget on Monday that includes more spending cuts and tax hikes. But European leaders, while welcoming the move, won't give Greece its latest loan fix for now because of the country's rising debt. More than two years after Greece adopted a punishing austerity regimen in exchange for bailout loans, the country remains deeply in debt and addicted to loans. There has been some progress on reforms, especially in doing business in Greece, but this has been vastly overshadowed by a deep recession that has left more than a quarter of the work force unemployed and a mounting debt that everyone agrees is unsustainable.

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The Greek parliament passed a 2013 budget today and it includes still more spending cuts and tax hikes. That's on top of new austerity measures that lawmakers narrowly approved last week, as tens of thousands of Greeks protested in central Athens. European leaders say they welcome Greek's commitment to frugality but they're withholding the nation's latest loan fix, because of concern over its fast-rising debt.

Joanna Kakissis reports from Athens.

JOANNA KAKISSIS, BYLINE: Giorgos Chronakis owns a giant discount store that's the busiest place on a street lined with shops selling cheap Chinese clothes, shoes and toasters. A middle-aged man outside shouts: Everything for one euro.

(SOUNDBITE OF MUSIC)

KAKISSIS: Inside, pop music plays as shoppers peruse spatulas, hairbrushes, and glittery Styrofoam Christmas ornaments. Chronakis says he opened the shop a year ago to help Greeks whose incomes have dropped by more than 50 percent since 2009.

GIORGOS CHRONAKIS: (Foreign language spoken)

KAKISSIS: But every day, I also get 30 or 40 people who are desperate for work, he says. I feel terrible because I have to turn them away.

After more than two and a half years of austerity measures, the Greek economy is still in limbo. One reason is the extreme spending cuts demanded by the European Union and the International Monetary Fund, which have lent Greece billions in bailout loans.

Economist Gikas Hardouvelis says Greece has followed through on those tough cuts to pensions and public sector wages.

GIKAS HARDOUVELIS: We have the largest cut in fiscal expenditure of any developed country over the last 50 years.

KAKISSIS: The cuts have also worsened the country's recession, which is expected to drag into a sixth year. Tens of thousands of businesses have closed, and more than a quarter of the workforce is unemployed.

Gregory Farmakis is an engineer whose informatics consulting business has been hit hard by the recession. He says Greece can only recover if its economy starts growing. That can happen by pushing labor market reforms, he says.

GREGORY FARMAKIS: We have a lot of unemployment but structural reforms concerning the labor market have never been implemented. Markets and the professions that are strictly regulated have not been opened.

CHRISTOS RIZOS: (Foreign language spoken)

KAKISSIS: A case in point is taxi owners, who have fought tooth and nail to limit new permits. Christos Rizos has been driving a taxi for more than two decades and he'd love to buy his own. But he can't afford the permit, which can still cost tens of thousands of dollars.

RIZOS: (Through translator) If the government could issue me a permit at a reasonable price, I could save the money I pay for renting this taxi and just run my own business.

KAKISSIS: Though many economists say reducing labor costs would increase competitiveness, anti-austerity activists worry that some reforms could shortchange workers.

Zsolt Darvas, a research fellow at the Bruegel Institute in Brussels, says structural reforms are the most effective way to help pay down a public debt that's expected to reach 190 percent of GDP next year.

ZSOLT DARVAS: I think these structural reforms are really indispensable. And there should be no easing of the targets on these fronts, because these reforms would benefit the Greek economy and also thereby benefit the public finances.

KOSTAS KONSTANTINIDIS: (Foreign language spoken)

KAKISSIS: Back at the discount shop, Kostas Konstantinidis says Greeks need to see that their sacrifices are paying off.

KONSTANTINIDIS: (Foreign language spoken)

KAKISSIS: If the government keeps cutting, he says more people will just lose their jobs. He lost his construction job two years ago and didn't find work until last month, when Giorgos Chronakis hired him to spend nine hours a day being a human megaphone at the discount shop. Konstantinidis is frugal and he pays his bills. And if there's work, he says, his country will pay its bills, too.

For NPR News, I'm Joanna Kakissis in Athens.

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