- Associated Press - Saturday, September 11, 2010

THESSALONIKI, Greece (AP) — Greek unions are planning protest marches in the northern city of Thessaloniki against the debt-plagued country’s harsh austerity program, before Prime Minister George Papandreou’s keynote speech on the economy Saturday.

A first taste of trouble came when an elderly man threw a shoe at Papandreou who had just inaugurated an annual trade fair. The projectile landed wide of its target, and police arrested the alleged shoe-thrower.

Separately, around 600 truck owners marched to the fair grounds to protest deregulation of their profession.

About 4,500 police were on duty to keep the peace at three bigger marches in the evening, as past protests have degenerated into riots. In May, three people died in a bank torched by hooded youths who infiltrated a large demonstration in Athens — an action that shocked Greeks and deflated the protest movement.

Papandreou’s center-left government says its daunting task of reducing the budget deficit from 13.6 percent of annual output in 2009 to 8.1 percent this year is on track, and has pledged to maintain the pace.

“We will continue as we started,” Finance Minister George Papaconstantinou said late Friday, but warned that: “several more months must pass before we can convincingly show that what has been done was not a flash in the pan, and that we won’t fall to pieces at the first sign of hardship.”

Greece narrowly avoided bankruptcy in May, when European countries and the International Monetary Fund granted Athens emergency loans worth €110 billion through 2012, on condition of deep cutbacks.

The government announced plans Friday to overhaul the state-run rail company — with debts of €10.7 billion ($13.62 billion)— by cutting payrolls and rail services. About 40 percent of its 6,300 workers will leave and be offered other public sector jobs, while the company faces private competition.

Papaconstantinou said reforms would extend to other state corporations.

“As a society, we have shown that we understand the problem,” he said.

But amid a deepening recession and high unemployment, unions are angry at this year’s deep spending cuts and consumer tax hikes, and fear new cutbacks. Heralding a new round of unrest, railway workers are planning strikes against payroll cuts, and some unionists have threatened to burn privately operated trains.

State revenues are increasing at a lower-than-projected rate, and the government has said it may have to increase sales tax rates on a broad range of goods, or raise heating fuel costs. Officials insist, however, that together with the pain, the country’s worst postwar economic crisis will allow key reforms to the bloated, inefficient public sector and encourage a healthier development model.

Papandreou said Friday that in the coming year, apart from “fighting the monster deficits and debt,” government policy would focus on reforms to tourism — a key earner — education, agriculture and renewable energy.

Inspectors from the EU and IMF next week will review the progress of austerity measures required for the bailout loans, as well as on efforts to cut the budget deficit. The country is due to receive €9 billion over the next few days in the second installment of the loans.

Greece remains off the market for government bonds — with interest rates at 9.6 percentage points higher than those for the benchmark German 10-year issue. Instead, Athens is seeking shorter-term loans, and is due to auction €900 million ($1.14 billion) worth of 26-week treasury bills on Tuesday.

The employment crisis has hit parts of northern Greece the hardest, including the town of Naoussa, where the jobless rate hit 50 percent, worsened by the relocation of factories to nearby Bulgaria.

“We have no hope. At this point we have nothing,” said Ioanna Stoumbiari, and unemployed worker at a recently closed textile factory. “Who will hire me at 50? I want to work, but who will hire me? They’re not hiring younger kids, they’re going to hire me?”

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Associated Press writer Costas Kantouris and APTN producer Theodora Tongas contributed to this report.