* Public sector union warns it may repeat this week’s strike
* Govt to finalize deficit-cutting measures this week (adds union leader, analysts comments, background)
By Renee Maltezou and Ingrid Melander
ATHENS, Feb 8 (Reuters) - Greek civil servants warned on Monday they could call more strikes if the Socialist government unveils tough austerity measures to cut its deficit and ballooning public debt.
The ADEDY public sector union already plans a 24-hour strike on Wednesday as Prime Minister George Papandreou puts the finishing touches to a deficit-cutting plan, endorsed by the European Commission to pull Greek finances back from the brink.
His socialist government has promised to tighten one of Europe’s leakiest tax systems and freeze public sector wages in a bid to slash Greece’s deficit from 12.7 percent last year to below the EU’s 3 percent ceiling by 2012.
“We will strike on Wednesday to defend our dignity, to put an end to our sacrifices on the altar of financial markets. These are pointless sacrifices,” ADEDY President Spyros Papaspyros told a news conference.
The government’s emergency tax reform and wages bills are expected to be unveiled this week and become law by the end of the month, but details have angered Greece’s powerful unions.
ADEDY said it would decide on Thursday after the government makes public the bills whether to call another strike in early March or join one on Feb. 24 by the GSEE private sector union. Together the two group half Greece’s 5 million workers.
ADEDY demands salary increases for public sector workers, more job creation and an overhaul to make the tax system fairer.
The government’s response to this week’s strike will be closely watched by international markets, keen to see whether Greece can contain a fiscal crisis that has already spread to euro zone periphery countries, Portugal and Spain.
ADEDY’s strike threat drove the spread of 10-year Greek bonds over benchmark German bunds higher and reversed an earlier fall in the cost of insuring Greek sovereign debt against default [ID:nLDE617173].
However, analysts said union sabre rattling would not necessarily derail the government’s austerity drive. “Of course, the unions have to show their muscles in order to please their members,” said Sebastian Wanke of Dekabank. “The strike will probably be a dead end and not lead to any changes in the government’s plans to reduce spending.”
Opinion polls published at the weekend suggested most Greeks back the government’s economic policy and consider the fiscal measures announced as necessary and fair.
A survey by pollster Kapa Research and published in To Vima newspaper on Sunday suggested 64 percent of Greeks believed the measures were essential. Nearly one-third of people polled believed they did not go far enough.
Finance Minister George Papaconstantinou, who took part in an impromptu cabinet meeting on Monday to discuss the package, said the raft of reforms would involve lowering the top tax rate, as the government seeks to shield the poorest Greeks.
“The 40 percent tax rate will be applied on income levels that are lower than what is the case today, but there will also be intermediate rates that will provide relief for low and middle incomes,” he told Ta Nea newspaper.
He said that as a result of the tax changes, the biggest burden would be felt by a small percentage of tax payers as 95 percent of earners report incomes below 30,000 euros a year.
Worries over Greece’s fiscal woes have battered its bond and stock markets, pushing its borrowing costs higher and helping to drive the euro currency to 8-1/2 month lows against the dollar.
European ministers told their counterparts at a weekend G7 meeting they would make sure Greece sticks to its budget-cutting plan [ID:nN06216480], but the pledges failed to reassure currency markets and the euro lost more ground on Monday.
“We are making a huge effort to protect our economy from speculation and a lack of credibility, which have led to adverse borrowing terms,” Papaconstantinou told the paper. (Writing by Daniel Flynn; Editing by Ron Askew)