UPDATE 1-Top Greek court reverses some troika-mandated wage cuts

Wed Jan 22, 2014 7:29am EST

* Top court reverses wage cuts to policemen, army officers

* Ruling could increase spending by up to 500 million euros

* Budget hole may complicate bailout talks with lenders

By Lefteris Papadimas

ATHENS, Jan 22 (Reuters) - A top Greek court has struck down wage cuts imposed by the government in 2012 on police and armed forces to comply with the terms of the country's EU/IMF bailout, court and government officials said on Wednesday.

The ruling by the Council of State, Greece's highest administrative court, could blow a hole of as much as 500 million euros ($677 million) in the country's finances, a senior finance ministry official warned.

That would further complicate already stalled talks with international lenders to release more rescue loans.

The court's ruling that a 10 percent wage cut for policemen and soldiers applied in 2012 was unconstitutional has not been made public but was confirmed by court and government officials after it was leaked to local media. It said policemen and soldiers had key duties and were entitled to better treatment than other state workers whose salaries were cut.

"They are a core part of the state and therefore deserve special protection," a senior court official told Reuters on condition of anonymity, estimating it could force the state to pay back a maximum of 100 million euros.

But a senior finance ministry official said the cost might be much higher since the ruling will also likely increase pension and promotion payments, which are calculated as a share of income.

"The bill could run up to 500 million euros," the official told Reuters on condition of anonymity, but added that a concrete estimate was not possible until the ruling was published in the coming months.

The back payments would cover the period since mid-2012 when the cuts took effect until now.

Portugal's constitutional court has also rejected austerity measures agreed by the government under its bailout, most recently in December, forcing the government to find alternative fiscal measures to reduce the country's budget deficit.

In separate decisions earlier this week, the Greek court rejected appeals to overturn wage cuts filed by other civil servants, including workers at the finance ministry, energy regulator and securities market watchdog, court officials said.

Greece has yet to decide if payouts will be made as part of its 2014 budget or stretched out over multiple years, the finance ministry official said. The 2014 budget includes a 1.12 billion euro reserve for "unforeseen spending".

Public sector wage cuts account for about a tenth of austerity measures Greece has taken since 2010 to fix its finances under the terms of two bailouts totalling about 240 billion euros.

Greece's public sector wage bill more than doubled during the country's debt-fuelled economic boom in 2001-2009, while it rose by less than 50 percent in the euro area over the same period. Civil servants earning more than 1,500 euros a month have since seen their wages cut by between 20 and 35 percent.

Athens and its European Union and the International Monetary Fund lenders are currently wrangling over 4.9 billion euros of bailout loans due to be released last year but held up over disagreements over size of a budget surplus and reforms.

Following three years of harsh austerity measures imposed by the lenders, Greece is on the verge of declaring it has eliminated its budget deficit, which peaked at 16 percent of GDP in 2009, and has ruled out any further wage or pension cuts.

Under the terms of its bailout, Greece's primary surplus must widen to 4.5 percent of GDP in 2016. Athens expects to achieve that goal without more austerity, helped by economic recovery and a crackdown on tax evasion.