Greek government prepares new austerity measures
Package to include public-sector wage cuts and value-added tax increase.
The Greek government is today finalising a new package of austerity measures worth around €24 billion to meet conditions to get emergency loans from other eurozone countries and the International Monetary Fund (IMF).
The package is reported to include wage cuts for public-sector workers and another hike in value-added tax in redoubled efforts to cut Greece’s budget deficit.
Click Here: Cheap France Rugby Jersey
The new measures are supposed to ensure the deficit is cut by at least 10 percentage points of gross domestic product (GDP) over the next three years. Greece’s budget deficit stood at 13.6% of GDP last year.
Greece’s Prime Minister George Papandreou outlined the new cuts to labour unions in Athens on Thursday (29 April). The Greek government, however, fears more violent protests in wake of the new cuts.
A spokesman for Olli Rehn, the European commissioner for economic and monetary affairs, said today that “the end is in sight” for negotiations on the package, which is being thrashed out in Athens by officials from the Greek government, European Commission, IMF and European Central Bank. Negotiations are expected to finish at the latest by this weekend.
The Eurogroup, the finance ministers of the eurozone, will hold a teleconference on Sunday, in order to approve the austerity package and activate the emergency loan facility.
Governments would seek, after the Eurogroup decisions, to rapidly complete the parliamentary procedures needed to release loans to Greece. Eurozone leaders would then meet to approve disbursement of the money.
The current planning within the office of Herman Van Rompuy, the president of the European Council, is that the summit would take place on the afternoon of 7 May (Friday). This is significantly earlier than the date of 10 May was originally mooted, giving an indication of the sense of urgency to provide positive news to the markets.
Precondition for loan
The extra measures being agreed in Athens are a precondition for a three-year loan facility being put together by eurozone countries and the IMF worth €120 billion.
Germany’s Chancellor Angela Merkel said her country would give loans only based on new austerity measures. Her government is expected to present draft legislation approving the loans on Monday (3 May), after opposition parties said yesterday that they would help to push through legislation through parliament before Greece has to refinance bonds worth €8.5bn which mature on 19 May. The legislation is expected to be voted on in Germany’s parliament on 7 May, and to grant Greece €8.4bn of support this year.
But providing loans to Greece remains extremely unpopular in Germany. Merkel and other political leaders have also come under increased pressure from the EU, the IMF and even US President Barack Obama to take swift action to contain the Greek debt crisis and stop it doing any further damage to global markets.
Germany’s President Horst Köhler said on Thursday that it was “in Germany’s interest” to provide the emergency aid to Greece. Axel Weber, the president of the German Bundesbank, also came out publically in support of the aid plan.
Breathing space
“The financial support will give Greece a sufficient breathing space from the pressures of the financial markets to decisively restore the sustainability of its public finances and to put the economy back on a path of sustainable growth,” Rehn said on Thursday.
The announcement that a deal was being finalised helped markets to stabilise in early trading on Friday. The euro was down slightly at €1.3242 awaiting final a eurozone-IMF deal. Yields on Greek bonds, and the bonds of other eurozone countries seen as vulnerable to contagion from Greece (eg, Portugal, Spain, Italy, Ireland) were also largely either stable or down.
Markets remain fragile, however, with stability dependent on further positive news from Athens, Brussels, and Berlin that progress is being made in helping Greece.