Tuesday, 2 March 2010

Further austerity announcements expected tomorrow

Following yesterday's announcements by European Monetary Affairs Commissioner Olli Rehn, the Greek press awaited tomorrow's new austerity announcements. To Vima carried a story predicting a 20 percent cut to above-salary benefits, which will be equivalent to a whole salary, for government employees. It also predicts a fuel, alcohol and tobacco hike. Employment Minister Andreas Loverdos has already frozen pensions for three of the largest funds.


Further austerity measures in sight for Greece
European Monetary Affairs Commissioner Olli Rehn yesterday called on Greece to implement further measures to ensure its deficit reduction target of four percent this year.

“The measures outlined in the Greek stability plan over January and February certainly go in the right direction, but … additional measures of fiscal consolidation are necessary so that the deficit reduction target for this year can be met,” Rehn told journalists in Athens. He described meeting this target “the one single most important thing for the moment”.

Greece has pledged to reduce its yawning 2009 deficit of 12.7 percent of GDP to 8.7 percent this year. It has so far reduced public salaries by 4-6 percent and raised petrol tax. But EU, European Central Bank and International Monetary Fund auditors who visited the Greek finance ministry last week reportedly found a 4.5 billion euro shortfall in the execution of the stability plan.

Even after implementing the first tranche of measures, Greece came away empty-handed from an informal European Union summit in early February to discuss a possible aid package. Asked repeatedly whether the EU was considering a a financial assistance package, Rehn said cryptically, “We are ready to put in place a plan for co-ordination and the euro area has the means to ensure the stability of the euro area as a whole.” He flatly denied that Prime Minister Yiorgos Papandreou and senior cabinet members, whom he met, had asked for “direct financial support”.

France and Germany are reportedly working on extending to Athens loan guarantees or bond purchases, but only in the event that Greece cannot sell its bonds on international markets.

The further austerity measures, due to be announced later this week, could take several forms. For the general public, the government is widely expected to escalate last month’s petrol tax hike. It is also reportedly mulling over a VAT increase. For public servants, who last week went on strike in protest at the especial pain reserved for public servants, there could be another cut in benefits above salary. Those benefits can add between 30 and 90 percent of salary over again. On Greek talk shows there is panicked discussion of the possible elimination of the Christmas bonus from government salaries.
In the longer term, the government is under pressure from the European Union to reform its pension entitlements. Greece is an ageing society, with 2.7 million retirees supported by 4 million workers, one quarter of whom work for the government and whose salaries are thus tax-supported.

Many Greek commentators have decried the lack of more concrete support to Greece as a lack of solidarity. “The euro is based on solidarity that goes both ways,” said Rehn. “It is based on respect for the common rules. No member of the euro can live permanently beyond its means. Either you control your debt or your debt starts controlling you.”

You can read this story in the Irish Times.

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