Greek PM makes pre-election pledge on pay and investment

After five months of draconian economic austerity, the Greek prime minister, George Papandreou, sought at the weekend to lift the mood of the debt-stricken nation with the promise of bonuses for pensioners and major investment in renewable energy schemes as his government braced for critical local elections. In an apparent effort to sway voters, the socialist leader announced that half a million low-income pensioners would receive a one-off payment of up to €300 (£267) by the end of the year – despite EU warnings of the inevitability of another upward revision of Greece's budget deficit. He also reinforced the message that there would be no further tough fiscal measures, writing in a Greek newspaper that there would be no more tax rises or wage cuts. "Everybody, both inside and outside Greece, must understand that the sacrifices made by the Greek people are unprecedented," he said. In a population where over one fifth live below the poverty line, pensioners have been hit hard by the government's austerity policies. For some, the volte-face amounts to a cynical ploy by a government facing its first test at the ballot box since assuming power last October. The 7 November election has quickly turned into a referendum on the unpopular reforms agreed to by Athens in exchange for emergency loans of up to €110bn (£97.8bn) from the EU and International Monetary Fund (IMF) to keep bankruptcy at bay. Polls released today showed the ruling Pasok party was heading for defeat in the capital and in northern Salonika. But as recession has deepened and tens of thousands of small businesses have closed, Papandreou has become increasingly concerned by policies that, ideologically, many socialists are at odds with "The importance of the 7 November vote has acquired a deeper political content: the citizens will give a clear signal on where they want the country to go," he wrote "The effort is not over, the alert is not over. 2011 is the second crucial half – the last year of recession." The attempt to lift spirits came as the Central Bank of Greece announced that the fiscal consolidation program was beginning to pay off. In a report to be published on Tuesday but leaked to the Greek media, the bank emphasised that progress had been made, saying that additional cuts aimed at meeting the country's deficit-reducing goals should be backed by growth-boosting investments. Greece is saddled with debts of more than €300bn and has pledged to bring down the deficit to less than 3% of GDP by 2013 when the IMF- and EU-sponsored rescue package expires. Last week, European commission sources said the country's deficit for 2009 was likely to reach 15% – a far cry from the 6% the socialists thought they had inherited from the previous conservative administration. The upward revision prompted the no-nonsense EU finance chief, Olli Rehn, to suggest that further austerity measures could not be ruled out – a prospect that could fuel further social unrest. Papandreou also announced policies that will spur development and competitiveness in the crisis-hit nation. Over the next five years, €45bn will be injected into renewable energy investments as part of plans to "green" the economy, he said. "Our country has enormous renewable energy sources that remain untapped," he told an investment forum meeting in Athens following a conference on Mediterranean climate change attended by global figures in the field. "We are opening up the energy market where public and private sector partnerships will play a crucial role ... We will not become competitive through classic wage cut methods but through investment in a different development model that adds value to our products and services."