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Belt tightening

December 24, 2009

Greek parliamentarians have adopted spending cuts and a crisis budget for 2010 meant to reduce the country's massive budget deficit and repair its damaged reputation among foreign investors and European allies.

Greek Prime Minister George Papandreou
Papandreou says Greece will prove its ready to clean up its actImage: AP

The vote in the Greek parliament in Athens in the early hours of Thursday fell along party lines with all 160 Socialist lawmakers agreeing to the austerity budget and 139 from four opposition parties opposing it. One parliamentarian was absent.

The budget, described by the Socialists as the "toughest" since democracy was restored in 1974, aims to rein in the country's spiralling debt and chaotic public finances.

Through spending cuts and salary and hiring restrictions in the public sector, the budget sets out to cut the deficit to 9.1 percent of gross domestic product from its current 12.7 percent. Greek debt has grown to about 300 billion euros ($430 billion) and fellow euro-zone countries and investors were alarmed as three international credit rating agencies successively downgraded that debt this month.

"This budget is not just about reordering our economy," Greek Prime Minister George Papandreou said just before the vote, "but also about restoring our credibility." He said his goal was ultimately to bring the deficit to under 3 percent of the GDP. "We shall prove our capacity and determination to change this country, to ourselves and to any foreigner who puts in doubt our will," he said.

Greece is a founding member of the common currency euro zone, but as the country's debt has ballooned, fears that its troubles could spill over into other European countries have arisen.

The opposition Communists have derided the spending cuts, calling them attacks on the working class. Protest strikes were held ahead of the budget deliberations be unions with similar concerns.

Editor: Jennifer Abramsohn