Athens.- The European Union will tell Greece next week to take extra measures by May 15 to shore up its finances and cut a spiralling deficit, Greek newspaper Ta Nea said on Saturday, citing a draft of the recommendations. The European Commission’s recommendations, due to be made public on Feb. 3, include cutting nominal wages in the public sector and setting a ceiling for high pensions, Ta Nea said.
Greece is seeking EU approval for an austerity plan it presented this month to reduce its budget deficit to below 3 percent of GDP by 2012 from 12.7 percent in 2009 and avoid a debt crisis seen as a threat to the euro zone.
The Greek finance ministry said in a statement the measures outlined in the report were already included in its own deficit-cutting programme. It added the European commission had already expressed its backing for the government plan.
“There is no issue of the EU rejecting the Greek growth and stability programme,” it said.
The European Commission declined to comment.
The Greek plan does not envisage nominal pay cuts but it includes reductions in special allowances which make up a large chunk of Greek civil servants’ overall income. This would translate roughly into a 3 to 4 percent cut in the public wage bill, labour unions say.
Under the headline “Urgent measures to be taken by 15 May 2010”, the EU document will tell Greece to “cut average nominal wages, including in central government, local governments, state agencies and other public institutions.”
The EU will also urge Greece to introduce advance tax payments for the self-employed and possibly a tax on luxury goods, according to the document, excerpts of which were printed by Ta Nea. Most other recommendations, as reported in the paper, are already part of the Greek plan.
A Finance Ministry announcement on Saturday responded to an article published in the “Vima” newspaper regarding an EU deadline for harsher measures to be taken by Athens on the economic front.
The announcement states that the “EU’s proposal will be announced on February 3, and the report on which the newspaper’s article refers to deals with measures already known and included in the Stability and Growth Programme, which has been submitted to EU”.
According to the newspaper, an EU document cites a 60-day deadline for the Greek government to take new harsher measures on the economy, including cutbacks in salaries and benefits, a freeze in hirings, new taxes in real estate and the gender equalisation in retirement ages, together with the increase of the age retirement limit.
Prime Minister George Papandreou gave last Friday the clearest indication yet that his government is determined to push through the tough austerity measures necessary to resuscitate Greece’s beleaguered economy during a flurry of interviews with the foreign press on the sidelines of the World Economic Forum at the Swiss ski resort of Davos.
“Greece remains committed to making the sacrifices required to put its finances in order,” Papandreou was quoted as telling the Italian newspaper Il Sole 24 Ore. The Greek premier added that his administration would focus on curbing wasteful spending and trimming the salaries of some public servants.
In another interview with US television network CNBC, Papandreou admitted that the planned changes would be “painful” but were unavoidable if the country’s dire fiscal situation is to be remedied and Greece is to “become a competitive economy.”
In a round-table interview involving 24 representatives of major foreign newspapers and TV channels, Papandreou and Finance Minister Giorgos Papaconstantinou sought to provide more details about measures outlined in the government’s crisis plan, officially called the Stability and Growth Program. Papaconstantinou appeared upbeat. “As the implementation of the package begins, and as we get the green light from the [European] Commission, as we think we will get next week, spreads will tighten and confidence will return,” he was quoted as saying by Bloomberg.
But in Athens, the first real social impact of the government’s austerity measures were evident. Around 2,000 firemen marched through the center, demanding payment for hours worked as overtime. Public sector employees on short-term contracts also took to the streets.
The next scheduled strike action is on February 10 when public servants are to walk out.
Other sectors are expected to join the action and a general strike has not been ruled out. Tax officials are due to strike on February 4 and 5, protesting planned cuts to salaries and benefits that they say will cut their incomes by up to 25 percent.
Greece has been hit hard on international markets, with bond yields soaring and shares plummeting, after the country’s new Socialist government revealed in October its budget deficit was twice as big as previously announced and more than four times the euro zone ceiling of 3 percent of GDP.
Concerns that Athens may not be able to service its debt have put pressure on the euro and raised questions over whether fellow euro-zone member states would come to Greece’s rescue.
There are also growing worries that the Greek debt crisis could spill over to other weak members of the currency bloc, such as Spain, Portugal, Ireland and Italy.
German daily Sueddeutsche Zeitung quoted an EU draft memorandum as saying the situation in Greece was a “big challenge and in the long term risky”, and could force other euro-zone countries to pay higher risk premiums on their bonds.
Prime Minister George Papandreou’s government, which came to power on a promise to tax the rich and help the poor to get Greece out of recession, has announced nominal wage freezes for civil servants earning more than 2,000 euros a month. It plans to award pay increases in line with inflation to all others.
The biggest public sector union, ADEDY, has called a 24-hour strike for Feb. 10 to protest against the austerity measures.
Papandreou said in Davos this week he would speed up introduction of a tax reform, by the end of February, and that he would also introduce changes to the pension system by the end of April.
IMF chief Dominique Strauss-Kahn said on Saturday that state debt will become the world’s biggest economic problem and some countries will need seven years to fix their finances.
“The fiscal sustainability problem is going to be one of the biggest, maybe the biggest problem for the coming … several years,” Strauss-Kahn told the World Economic Forum in Davos.
“We’ll have to deal with this for five, six or seven years, depending on the country,” he said.
Strauss-Kahn’s comments came as worries over Greece’s debt woes clouded the Davos forum, where Greek Prime Minister George Papandreou has been trying to reassure markets that his country will act to beat its debt crisis.
The US and many other developed countries also have major budget deficits as they pump in extraordinary sums to stimulate their economies during the global slowdown.
As the global economy begins to recover, the debate has turned from how much stimulus to inject to when to end pump priming, particularly since the cash measures have increased deficits.
Strauss-Kahn noted that even if continuing stimulus packages could exacerbate debt, the risk of ending them too early was greater.
“The only reason of a double dip could appear would be that the exit after the stimulus would be too early. In this case, frankly I don’t know what we can do,” he said.
A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession.
With global economy recovery still fragile, Strauus-Kahn’s assessment is “basically not to exit too early.”
“All that has been prepared for 2010 has to be implemented,” he said.