Greece’s finance minister outlined deep spending cuts and tax increases Sunday to free up a multi-billion-euro rescue by the International Monetary Fund and European Union, the first bailout for one of the 16 countries using the euro.
The measures, which include tax increases and salary and pension cuts for civil servants, aim to reduce the budget deficit to below 3 percent of gross domestic product by 2014, from the current 13.6 percent of GDP, George Papaconstantinou said.
“We are called on today to make a basic choice. The choice is between collapse or salvation,” he said.
The full amount of the three-year IMF/eurozone package will be announced in Brussels after an emergency eurozone finance ministers’ meeting, where Papaconstantinou was heading after his Athens news conference. He said the amount would be “close to” widely reported figures. French and other officials have said it would be euro120 billion.
Papaconstantinou said savings worth euro30 billion through 2012 would be achieved through public service and pension pay cuts, higher taxes and streamlining government.
Papaconstantinou said that annual holiday bonuses will be capped at euro1,000 ($1,330) per year for civil servants and scrapped for those with gross monthly salaries over euro3,000 ($3,995). Pensioners’ bonuses will also be capped at euro800 ($1,065) and canceled for those paid more than euro2,500 ($3,330). The cuts will not extend to the private sector, as had been widely feared.
Greeks receive their annual pay in 14 salaries, receiving extra at Christmas, Easter and for their summer vacations.
Taxes would also be increased, including further hikes on alcohol and tobacco. The top bracket of sales tax rising from 21 percent to 23 percent.
Papaconstantinou said his country’s debt would reach 140 percent of GDP in 2013 and start falling from 2014, while economic output is set to contract by 4 percent in 2010.
The new austerity measures were seen as essential for the EU and IMF to unblock the rescue package, which Athens asked for last week and which will see other eurozone countries and the IMF extend loans to Greece. Germany, which has the eurozone’s largest economy and so would be the largest single contributor, had been highly reluctant to release any funds without Athens implementing more harsh spending cuts.
After Papaconstantinou’s announcements, EU Commission President Jose Manuel Barroso said the new measures were “solid and credible” and that he was recommending the EU activate the rescue package.
“The Commission considers that the conditions for responding positively to the request by the Greek government are met and recommends that the coordinated European mechanism for assistance to Greece be activated,” he said in a statement in Brussels.
Barroso said the aid will be “decisive” in getting Greece back on track and protect the financial stability of the 16 nations using the euro currency.
Papaconstantinou said the government hoped to be able to return to borrowing on the market soon, but that the plan would allow the government breathing space to implement its austerity program and put its finances in order.
“We are confronted with international markets that do not give us the time to make the necessary adjustments,” he said. Greece has seen its borrowing costs skyrocket to more than four times those of Germany on the international market in recent weeks.
Earlier, Prime Minister George Papandreou announced his government had reached an agreement in tough negotiations with the IMF and EU on the measures.
“The avoidance of bankruptcy is the national red line,” he told the Cabinet in a televised speech to his Cabinet. “I want to be clear to all. I have done and will do everything so the country does not go bankrupt.”
Papandreou called on Greeks to make “great sacrifices” to avoid a catastrophe, and said the country’s problematic civil service would bear the brunt.
There will also be further hikes in consumer taxes, and deep cuts in defense spending and hospital procurement, the prime minister said.
“The alternative course would be a catastrophe and greater pain for all,” he said.
Greek unions planning a general strike Wednesday against the new cuts. Violent clashes broke out Saturday during anti-government protests at May 1 Labor Day rallies.
The government will submit special emergency legislation to Parliament that was agreed upon with the EU and the IMF at a negotiating session Saturday. Parliament is expected to approve the measures by Friday.
“Economic reality has forced us to take very harsh decisions,” Papandreou said, adding that “This is the only way we will finance our euro300 billion debt.”
ND: Waterloo of gov’t predictions
Main opposition New Democracy (ND) leader Antonis Samaras on Sunday called the new package of austerity measures announced by the government earlier in the day as a “Waterloo of the government’s predictions and policies”, adding that “my only concern today is the implementation of policies that will take us out of this vise at the earliest”.
Samaras charged the prime minister of “announcing today as Greece’s ‘salvation’ that which up to a few days ago he had been ruling out as harmful and unnecessary: Additional drastic measures, much worse than those already taken and which up until a few days ago were deemed as absolutely ‘adequate’.”
“We are seeing the admission of a genuine Waterloo of the government’s forecasts and policies. They had predicted a recession this year of -0.3 percent, and today they admit that the recession will be more than tenfold up, reaching -4.0 percent. They had assured us that the Stability and Development Program was fully adequate for this year. Now they admit that it has essentially failed and are imposing new, much more drastic measures, with new increases in indirect taxes and additional salary cutbacks in the public sector,” Samaras said.
“Either they were lying to us up to now, or they lost control much earlier. Or both. At any rate, they have spent every last reserve of credibility in a few short months,” the opposition leader said, adding that today the government was giving “a much bigger dose of a ‘medicine’ that has already failed”.
KKE: Justness of people’s struggle
Communist Party of Greece (KKE) leader Aleka Papariga said on Sunday after the government’s announcement of new austerity measures that “the time has arrived for the great and irreplaceable people’s responsibility to prove that they do not believe the government’s blatant lies but in the justness of their struggle”, and called the new measures agreed by the government with the EU-IMF «barbarous”.
Papariga stressed charged that “what prime minister George Papandreou said that the measures will not affect the workers in the private sector is a lie, the measures will affect the public and the private sector with new labour relations, the social security reforms and the abolition of collective labor agreement negotiations, and the blackmailing by the large capitalist employers”.
LAOS: οn new measures
Popular Orthodox Rally (LAOS) George Karatzaferis sharply criticised the government on the new package of measures it announced on Sunday.
He accused the government of being weak, “that is why the negotiation (with the EU-IMF) was also weak, resulting in the measures announced by the government earlier today”.
Karatzaferis described as “people of the New Rome” the ‘troika’ of European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) officials “who imposed measures that crush our dignity without any guarantee for the future, without any guarantee that we will be able to have growth, without any guarantee that we will be able to permanently escape from the crisis”.
He further charged that prime minister George Papandreou has “managed to become part of the problem”.
Earlier, LAOS spokesman Costas Aivaliotis said that Papandreou’s “rehashed painful ideas mean lots of antipyretic medicines but no flu medicine”.
“They may give relief today, but without development, the symptoms will simply become worse tomorrow”.
SYRIZA: Alternative road exists
Coalition of the Radical Left (SYRIZA parliamentary alliance) parliamentary group leader Alexis Tsipras called the new measures announced by the government on Sunday as “criminal choices” that “do not concern only the coming three years”.
The measures “are sinking us into a dark tunnel that will continue for at least the next two decades because, if we accept this road, many years will be needed to restore even the few, but existing today, productive forces of the country,” Tsipras said, adding that the choices the government co-drafted with the IMF and the EU “in no way comprise the only road for the country”.
He accused the government of proceeding “panic-stricken and without any democratic legitimacy” to the “unconditional surrender of Greek society to the savage intentions of capital and the markets”.