UPDATE 3-EU/IMF want tougher Greek austerity for deal -union

Thu Apr 29, 2010 2:06pm EDT

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* Proposals target bonuses, some worth a month's pay

* Hikes to VAT, excise taxes, also under discussion

* EU/IMF deal expected to be finalised within days

(Adds PM quote 3rd paragraph)

By Lefteris Papadimas and Dina Kyriakidou

ATHENS, April 29 (Reuters) - Greece will impose steeper salary cuts and new austerity measures to clinch a three-year, multi-billion euro aid deal and avoid default, union officials said on Thursday, vowing protests.

Prime Minister George Papandreou met unions to discuss the European Union and International Monetary Fund bailout, expected to be finalised within days, to prepare the ground for what are set to be unpopular measures.

"The immediate emergency measures will be a strong bridge to cross over to great changes, secure the life of every citizen and have dynamic growth in a more just society," he told his socialist party.

"We will do whatever it takes to save the country," he said.

Unionists said Papandreou told them measures requested by the EU/IMF team include abolishing Christmas and Easter bonuses together worth two months' pay, a rise in VAT and other steps to cut the budget deficit by 10 percent of GDP in 2010 and 2011.

"They want Greece to cut the deficit by 10 percentage points in 2010 and 2011 ... so that Greece can go back and borrow on markets in the third year of the programme," said one union official who requested anonymity.

Revelations in October by the new socialist government that the budget deficit was much bigger than expected launched Greece into a debt crisis that is threatening global markets.

The initial 12.7 percent deficit of gross domestic product for 2009 was revised to 13.6 percent last month, undermining Greek targets to bring the gap below 3 percent of GDP by 2012 by cutting it to 8.7 percent in 2010 and 5.6 percent in 2011.


Investors are closely watching the talks for details on whether the aid will start in time for Greece to refinance an 8.5 billion euro bond coming due on May 19 and if the deal will be big enough to handle Athens' 300 billion euro debt pile.

Greek bond interest rates have hit record highs as a result of the crisis, making borrowing on markets prohibitive.

The euro zone member state has already cut public sector wages, hiked taxes, frozen pensions and taken other steps to cut the deficit by around a third this year, despite widespread opposition from Greeks.

Sources close to the talks said earlier on Thursday the measures being discussed include hiking Value Added Tax by 2-4 percentage points from 21 percent currently, and a rise of at least 10 percent on fuel, tobacco and alcohol taxes.

"All these are on the table," said one of the sources, who requested anonymity. "They are not final yet."

Union officials said a three-year public sector wage freeze was also being discussed.

The elimination of Christmas and Easter bonuses, the equivalent to 13th and 14th monthly salaries, would mean an additional 10 percent cut in public sector base salaries over an already agreed 4 percent cut, saving the state about 1.4 billion euros a year.

"The talks are tough," government spokesman George Petalotis told reporters. "No one can guarantee anything, we know how difficult the country's situation is."

In Brussels, Economic and Monetary Affairs Commissioner Olli Rehn said the EU should complete talks with Greece "within days" on a financial aid package, conditional on Greece cutting its deficit. He gave no details of the package. [ID:nBRU010773]

On Wednesday, Germany's Green party parliamentary leader cited IMF chief Dominique Strauss-Kahn as saying the aid package would be worth 100-120 billion euros ($133-160 billion) over three years, with 45 billion euros expected in the first year.

Cuts were also aimed at Greece's system of public wage allowances, which often include generous extra pay for activities such as using computers or getting to work on time.

These are primarily meant to keep base salaries and pensions low, and a 5-15 percent cut could save the state about 300 million euros a year.

More measures are bound to meet resistance. Opinion polls show a majority of Greeks oppose outside aid and expect the rescue package to hit living standards. Unions have pledged strikes and many analysts fear violent protests come autumn.

"It's a disaster! The government has crossed the line," said Despina Spanou, a member of the public sector union ADEDY board. "We can't live this way. We will fight these measures with all our might, because this is a battle for survival." (Additional reporting by George Georgiopoulos and Renee Maltezou; writing by Dina Kyriakidou; editing by Stephen Nisbet, Ron Askew)

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Comments (1)
Fliujniligui wrote:
Haha. I am Canadian, the 5 first months or the year I work are used to pay taxes. The 7th others are used to earn money to live and sometimes invest in bargain stocks such as NBG right now.

Canada is solvent, AAA resistant and thriving. Do this has something to do with the fact that we pay taxes and we are not paid a 13th and 14th months.

ADEDY should have some pride and common sense and give up even the idea of trying to negociate about those 2 extra bonus months while the country is on the brink, unable to access capital market and relying on EU countries and IMF to survive and avoid bankruptcy.

In or out of EU, Drachma or EU, default or not… Sooner or later, Greece will have to make this cleanup to be competitive, renewed and stop defaulting every 10-15 years!

Apr 29, 2010 12:39pm EDT  --  Report as abuse
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