EU, IMF want tougher Greek austerity measures for deal

ATHENS: 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 yesterday, vowing protests.

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

”We realised we stand before a done deal,” said Ilias Iliopoulos, secretary-general of the ADEDY public sector union after the meeting. “This will acutely burden people, and what is worse, unfairly.”

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 value added tax (VAT) and other steps to cut the budget deficit by 10% of gross domestic product (GDP) in 2010 and 2011.

”They want Greece to cut the deficit ... 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% deficit of GDP for 2009 was revised to 13.6% last month, undermining Greek targets to bring the gap below 3% of GDP by 2012 by cutting it to 8.7% in 2010 and 5.6% 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 yesterday the measures being discussed include hiking VAT by 24 percentage points from 21% currently, and a rise of at least 10% 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.” — Reuters

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% cut in public sector base salaries over an already agreed 4% 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.

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