Greece vows to cut state jobs, second bail-out call looms

By Ingrid Melander and Angeliki Koutantou

ATHENS (Reuters) - Greece promised further cuts to its bloated public sector on Tuesday before a second conference call with its international lenders, whom Athens must convince to extend more loans to avoid bankruptcy next month.

Anger over austerity among ordinary Greeks is matched by bail-out fatigue among north European creditor countries, especially Germany, Finland and the Netherlands, which are taking the toughest line on strict conditions for more money.

Protests against cuts have dwindled since early this year when the Greek capital saw bloody clashes between police and rioters, but frustrations are growing again as the crisis worsens.

"They have crippled us," said 44-year-old public sector employee Niki Playannakou, also a single mother.

"We accepted the cuts last year, we put up with some things for the sake of the country. But as time goes by we don't see things improving. How much can a family take?"

Finance Minister Evangelos Venizelos will discuss austerity plans with EU and IMF inspectors at 1700 GMT, his office said.

Greek government officials said a first call on Monday had been "productive and substantive" and they expected to clinch the release of an 8 billion euro ($11 billion) aid tranche despite consistently missing the targets of its bailout deal.

"Our primary target is to shrink the state," deputy government spokesman Angelos Tolkas said on NET radio. "The Greek state budget has stopped paying the wages of some 200,000 civil servants in the last two years. And we are continuing."

The IMF has told Athens to cut the public sector workforce and payroll, shut inefficient state entities and fight tax evasion. The government has cut public sector pay and pensions but so far balked at sacking more civil servants, a key component of the governing Socialist party's electorate.

AVOIDING DEFAULT

Venizelos has pledged to take on as much austerity as needed to avoid a default that would be likely to trigger deeper turmoil on already shaky global markets and push other indebted countries in the euro zone periphery closer to the brink.

Officials close to the so-called troika of the EU, IMF and European Central Bank said Greece still had work to do before Tuesday's call, including fleshing out details of how to prevent slippage from next year's budget deficit target of 6.5 percent of annual output.

Demand was strong at the Greek debt agency's auction of 1.25 billion euros of 3-month T-bills, but the yield rose to 4.56 percent. The short-term debt market is Greece's sole source of market funding and is seen as a barometer of foreign sentiment.

Athens also denied a report that it was considering holding a referendum on the country's membership in the euro zone.

Citing unnamed sources, Kathimerini daily wrote that Prime Minister George Papandreou was mulling a plebiscite on whether Greece should continue to tackle its debt crisis within the single currency or outside of it.

The government has long said it was planning a referendum this autumn on political reforms but has repeatedly denied it would concern the country's euro membership.

Asked if the referendum would be about staying in the euro zone, deputy government spokesman Tolkas said: "No. We haven't discussed such an issue, definitely not."

He said the government had put a bill to parliament on Monday aimed at allowing the country to hold referenda but without specifying any issue.

Ratings agency Fitch criticized a failure by euro zone leaders to deal with the crisis and said an aura of ambivalence to Greece staying in the bloc had raised doubts over the political commitment to the single currency.

It said however: "Fitch expects Greece to default but not leave the euro zone." ($1 = 0.735 Euros)

(Additional reporting by George Georgiopoulos; Writing by Michael Winfrey; Editing by Louise Ireland)