Greece grinds to a halt as major public sector layoffs loom

Athens ground to a halt on Tuesday as Greek workers went on strike in protest at thousands of planned public sector job cuts, just days before a high-profile visit to the country by Germany's finance minister.

Greece's international lenders last week approved the latest tranche of aid for Athens, but stipulated tough conditions in return for the assistance, including a dramatic reduction in the size of the country's civil service. Greece's two largest unions, which represent around 2.5 millions workers, responded by calling a 24-hour general strike, which saw trains, buses and flights cancelled.

Elena Panaritis, an economist at the Thought 4 Action think tank, said this week's unrest could threaten the stability of the country's coalition government, made up of New Democracy and Pasok.

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"It shakes the whole structure of the political system," she told CNBC on Tuesday. "Political favors have been placing public sector people in specific jobs – and now the same political parties need to cut these jobs. So yes, it does generate a critical electric chair for both [parties]."

She added: "The question in the streets is: 'how long will they last?'"

The demonstrations come at an awkward time for Greek Prime Minister Antonis Samaras, just two days ahead of German Finance Minister Wolfgang Schaeuble's arrival in Athens.

The official visit on Thursday is expected to spark further protests, highlighting the wide-spread anger felt by the Greek public towards its international creditors and the reforms demanded in return for aid.

Greece's "troika" of lenders - the European Union, European Central Bank and International Monetary Fund - want to see 25,000 public sector workers placed in a so-called "mobility pool" by the end of the year. They will be given eight months to find work elsewhere in the civil service or face redundancy.

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Greek communist union members protest on July 16
Angelos Tzortzinis | AFP | Getty Images
Greek communist union members protest on July 16

It comes as the country battles increasingly high unemployment. Last week, statistics service ELSTAT revealed that Greek unemployment hit 26.9 percent in April - more than double the euro zone's average. Over 57 percent of the country's young people are unemployed.

But Panaritis argued these attempts to reduce the size of Greece's public sector were not genuine reforms and would ultimately fail.

"What really needs to happen to reduce costs is by reducing bureaucracy by simplifying procedures, by merging organizations – and then of course you may need to generate redundancies," she said. "This has not occurred… Instead we have cuts that come abruptly, out of the blue sky… They are not sustainable."

The Greek parliament is expected to vote on a bill on Wednesday that will pave the way for the civil service layoffs to begin. Miranda Xafa, CEO of EF Consulting, said the bill was likely to be passed, given the coalition government's parliamentary majority.

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"The most contentious part of the omnibus bill [is] the long delayed plan to reduce the size of the bloated Greek public sector," she added. "After three years of austerity, which saw the unemployment rate shoot up… no civil servant had been fired until the closure of the public broadcaster last month."

The abrupt shutdown of ERT in June led to days of demonstrations with Samaras battling to avoid a political crisis in his coalition government.

-- By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop