Greece awaiting EU 'solidarity' after deeper cuts

[March 03, 2010]  ATHENS, Greece (AP) -- Prime Minister George Papandreou says Greece is "awaiting European solidarity" after ordering new austerity cuts which government officials say are worth an euro4.8 billion ($6.5 billion).

Papandreou made the comments as he briefed Greece's president Wednesday, shortly before the measures were to be announced to the public. Speaking to reporters after the meeting, he said the measures were "necessary for the survival of our country and our economy."

Papandreou will meet German Chancellor Angela Merkel in Berlin Friday and French President Nicolas Sarkozy in Paris Sunday, as the European Union remains tight-lipped over a possible bailout plan to be made conditional on the cuts.

Government officials says cuts to be formally announced later Wednesday will freeze pensions, slash civil service pay and hike sales tax from 19 to 21 percent.

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ATHENS, Greece (AP) -- Greece plans new spending cuts worth an expected euro4.8 billion ($6.5 billion), reducing bonus pay for civil servants and ratcheting up the sales tax to 21 percent to try to lift the country out of a major financial crisis, officials said Wednesday.

Prime Minister George Papandreou -- who has said the country is in a "state of war" and was fighting for its national survival -- hopes the measures will give his government breathing space to borrow an expected euro5 billion ($6.8 billion) from the bond markets over the next few days.

The measures -- set to be backed by the European Commission later -- appeared to have received early backing by the markets.

Greece has around euro20 billion ($27 billion) worth of debt maturing in April and May so the government will have to tap the markets for more cash and for that, firmer pledges of support from other eurozone countries are still likely to be required, said Ben May, European economist at Capital Economics.

"The Greek PM's meeting with Angela Merkel on Friday could be crucial," he added. Papandreou is to travel to Paris to meet with French President Nicolas Sarkozy Sunday after his visit to Berlin.

Government officials, speaking on condition of anonymity because it was ahead of the official spending cuts announcement, said the measures would save the government euro4.8 billion.

They said the measures would include cuts in civil servant's annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent.

The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.

In a dramatic speech Tuesday night, Papandreou said all Greeks would have to accept painful sacrifices, and he warned of "catastrophic" consequences unless the country can borrow on international markets at lower lending rates.

Greeks have their annual salaries split into 14 monthly installments, with the last two considered holiday bonuses. Unions have said abolishing the 14th salary would be tantamount to a "declaration of war."

"It is a very difficult day for us ... These cuts will take us to the brink," said Panayiotis Vavouyios, the head of the retired civil servants' association. "Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace."

About 200 retirees protested Wednesday in central Athens, scuffling with riot police and breaking through a police cordon to get to Papandreou's office and official residence, where they stood outside chanting "Money for the rich, but none for us!"

Greece wants EU help to borrow money at lower rates, but European officials have remained tightlipped over any potential bailout plan, insisting Athens must first improve its finances. Greece's financial crisis has severely shaken confidence in the euro, the common currency used by 16 nations. It has also lead to market expectations of some sort of bailout led by the German and French governments.

Papandreou is also meeting with President Barack Obama in Washington on March 9.

The Greek national debt has reached euro300 billion ($405 billion). Greece plans to borrow some euro54 billion ($7.4 billion) through sovereign debt issues this year, and has so far raised around euro13 billion ($18 billion), including treasury bill sales.

Athens has promised to reduce its budget deficit from 12.7 percent of gross domestic product in 2009 to 8.7 percent this year but many economists consider that goal unrealistic.

The European Central Bank and International Monetary Fund are helping the EU assess Greek finances after Athens revealed a major budget shortfall last year and was accused of issuing misleading financial data for years.

The new measures are to be officially announced after Papandreou briefs the country's president following a Cabinet meeting.

The country's civil servants' umbrella union has declared its third nationwide strike for March 16, while tax officials walk off the job for 48-hours on March 8. Taxi drivers were on strike Wednesday for the second straight day.

"People are under a very heavy burden and they do not have enough to get by. I wonder after these measures are implemented, what will be left? At some point, you have to say that this is enough," said Ilias Iliopoulos, general secretary of the civil servants' union. "If the country asks us to give a salary, we will give it. But we cannot be the only ones who are made to pay."

Greece has already imposed a hiring freeze in the civil service and raised taxes on fuel, cigarettes and alcohol as part of an existing austerity plan.

[Associated Press]

Associated Press writers Elena Becatoros and Derek Gatopoulos in Athens and Pan Pylas in London contributed to this report.

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