Greece will not require further cuts, says George Papandreou

The arduous campaign to pull debt-stricken Greece out of crisis can be achieved without further austerity, the Greek prime minister, George Papandreou, pledged today as IMF inspectors prepared to fly into the country. As the recession-hit nation braces for what many fear will be an unprecedented winter of discontent, the socialist leader ruled out further fiscal reforms, even if he acknowledged that budget revenues were lagging. There would, he said, be no more cuts or public-sector layoffs, the measures that have driven thousand of Greeks on to the streets and spurred violent protests. "The [shortfall] in revenues is about €1.5bn [£1.24bn]," he said after delivering a keynote economic speech in Salonika. "But with the pace at which we are advancing and with the measures we have already taken, we are confident we will reach the goal we have set for 2010 … there will not be more measures." It was the first public attempt by Papandreou to convince a sceptical populace that the country is on course to meet its ambitious deficit-cutting targets. With the economy set to contract by 4% this year and unemployment nearing 12%, there is mounting anger over the draconian austerity policies Athens has been required to impose in exchange for up to €110bn in international emergency aid. Civil servants, who account for the bulk of the workforce, have seen their wages and pensions cut by 20% as part of the belt-tightening programme, the toughest since the second world war. Unparalleled tax hikes, including a steep levy on fuel, have hurt households as never before. The reforms have been widely blamed for driving Greece deeper into recession. Mass protests greeted Papandreou as furious demonstrators marched through Salonika ahead of his speech – delivered almost a year after he assumed power. The northern capital, perhaps more than any other part of Greece, has borne the brunt of the stringent policies with the tell-tale signs of recession everywhere. Increasingly, factories and shops have closed with desperate entrepreneurs relocating businesses to Bulgaria and other Balkan neighbours where labour costs are cheaper. But Papandreou – who described the prospect of Greece restructuring its debt as a "catastrophic" move that would bring about the collapse of the banking system – insisted on sounding a message of hope. "Despite all the predictions, 11 months later we have reached our targets, in fact are beyond our targets … [we] have shown that the Greek people have decided to make changes … and by the end of the year we will have cut the deficit by 40%," he said. Under the agreement reached with the IMF and EU in return for the three-year rescue package, the government has promised to cut the budget deficit from 13.6% of GDP to 8.1% by December. By 2013, when the "memorandum of understanding" ends, Greece would, said Papandreou, no longer be subject to international supervision – a development that has also sparked outrage amongst Greeks.The team of officials from the IMF, EU and European Central Bank, who arrive in Athens tomorrow, will monitor the progress made by Greece before condoning further loans.