Athens agrees to sweeping budget, wage cuts and tax hikes amid worker protests
(ATHENS) Greece sealed a deal with the European Union and IMF yesterday that opens the door to a multi-billion euro financial bailout and will require big sacrifices from the Greek people, Prime Minister George Papandreou said yesterday.
Those sacrifices amount to budget cuts of 30 billion euros (S$54.6 billion) over three years, on top of measures already agreed and aimed at bringing a towering budget deficit back to the EU limit by 2014.
The government told Greeks, who have already taken to the streets in protest against the austerity drive, that they had to chose between a rescue or an economic collapse.
Tens of thousands of demonstrators marched across Greece on Saturday, including hundreds of black-clad youths who clashed with police here.
Police estimated that 17,000 people protested in Athens. They said that 10 people were arrested, and reported no serious injuries. The protests, and a planned strike on Wednesday, are a sign of the challenges ahead for Greece.
'This crisis is not my fault, I won't accept these austerity measures and I want to know where all the money has gone,' Emily Thomaidis, 29, the owner of a coffee shop, said as she marched through central Athens.
The bailout package, expected to total up to 120 billion euros over three years, represents the first rescue of a member of the 16-nation eurozone and is aimed at stemming a debt crisis that has shaken markets worldwide.
'It is an unprecedented support package for an unprecedented effort by the Greek people,' a sombre Mr Papandreou told a televised Cabinet meeting.
'These sacrifices will give us breathing space and the time we need to make great changes,' he added. 'I want to tell Greeks very honestly that we have a big trial ahead of us.'
Finance Minister George Papaconstantinou gave details of the agreement before heading to a meeting later yesterday with his eurozone counterparts in Brussels, where the aid is expected to win the bloc's formal backing.
The deal's size would be announced in Brussels but it would cover a large part of Greek borrowing needs for the next three years, Mr Papaconstantinou told a news conference.
'We are all being called to make a choice,' he said.
'The choice is between collapse or salvation. The choice is between fleshing out a very ambitious and difficult three-year programme of fiscal consolidation, a programme of structural reforms . . . or the country reaching an absolute dead-end.'
Athens promised to slash its budget deficit to the EU limit of 3 per cent of gross domestic product (GDP) by 2014 from 13.6 per cent last year.
'Today, we have to flesh out an economic programme which sees fiscal efforts to cut the deficit by 11 (percentage) points of GDP, or 30 billion euros, starting from today and over the next three years,' Mr Papaconstantinou said.
Salaries and pensions in the public sector would be frozen during the three- year programme while a fund backed by the IMF and EU would be set up to help Greek banks. Value-added tax and duties on fuel and alcohol will rise sharply.
Mr Papaconstantinou forecast that Greece's public debt would soar to nearly 150 per cent of GDP but then start falling from 2014. However, the plan would cover a large part of Greece's borrowing needs for the next three years, with Athens returning to commercial borrowing when 'appropriate'.
In a statement, European Commission President Jose Manuel Barroso recommended that Europe activate the aid, calling the package of austerity measures 'solid and credible'.
German Chancellor Angela Merkel says that she will push for Germany to free up funding for the Greek bailout by Friday.
Ms Merkel told reporters in Bonn yesterday that she welcomed Athens agreeing to a plan and would present the legislation to her Cabinet today.
She said that she would push Germany's parliament to pass legislation needed to free up funding for the bailout by Friday.
Greece and its international backers hope that the deal can prevent the crisis from spreading to other eurozone members with fragile finances such as Portugal and Spain.
Economists say that if the rescue agreed yesterday fails to calm markets, European countries could end up footing a bill of half a trillion euros to save several other nations in the eurozone.
Both Portugal and Spain saw their debt downgraded by ratings agencies last week and could become targets for the market unless they tackle their own deficits swiftly. -- Reuters, NYT
Source: Business Times, 3 May 2010
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