Greek Prime Minister George Papandreou outlined major cuts in public spending on Monday and warned that the country faced the risk of "sinking under its debt".
AFP - Greek Prime Minister George Papandreou outlined sweeping public spending cuts on Monday to bring Greece's deficit into line and warned that a spiralling debt crisis could sink the economy.
"Greece faces the risk of sinking under its debt," Papandreou said in a speech that had been eagerly awaited by the financial markets.
He said Greece had "lost every trace of credibility" because of the crisis.
"It is time to address and resolve once and for all deep rooted problems that are holding the nation back," he added.
His proposals included curbs on public sector hiring and pay, a 10-percent cut in social security and "a significant reduction in military expenditures."
He also called for a 90-percent tax on bonuses at banks and an overhaul of the fiscal system in order to drum up more revenue for the state.
The measures are to come into force from early 2010 and will bring the deficit down below 3.0 percent of output as required by the eurozone, he said.
Greece's deficit is set to rise to 12.7 percent of gross domestic product this year -- well above the limit for countries using the euro currency.
The crisis -- described by the Greek finance ministry as the worst in the country's modern history -- has raised the yields on Greek bonds, which means that the Greek state has to pay higher interest on its loans.
The government's plans threaten to spark fierce union resistance, with a leading trade union firing a warning shot hours before Papandreou's speech on the nation's crippling 300-billion-euro (442-billion-dollar) debt.
The main union representing civil servants, Adedy, told the socialist government, which ousted the conservatives in October's general election, to clarify its policies and warned of coming industrial action.
"The escalation of our strike activity will be immediate and will be declared by early February," the union said.
In a stark assessment of the worsening debt situation, government vice president Theodore Pangalos told the newspaper Ta Nea that "at this moment, loans are a matter of life and death for the Greek economy."
He said: "Our debt must be stabilised before it can begin to retreat." And he added: "I've never seen such a situation in my 29 years in parliament."
Financial markets worldwide were roiled last week after Fitch Ratings hit Greece with a credit downgrade, which also sparked fears that other heavily indebted and recession-hit eurozone members could suffer the same fate.
The Greek stock exchange was rocked by uncertainty, shedding nearly 10 percent of its value in cumulative losses early last week, then briefly rebounding before closing with a fresh 2.41-percent loss on Friday.
The market closed up 2.60 percent on Monday ahead of Papandreou's speech.
Greece must now enact economic measures to raise its credit rating after the downgrading in order to receive ECB credit, a European Central Bank executive board member said in an Italian newspaper interview published on Monday.
"From our point of view, Greece must implement measures by the end of 2010 allowing public debt bonds to retrieve an A rating, which will again become the minimum level for our market operations," Lorenzo Bini-Smaghi told La Stampa.
In another development on Monday, credit rating agency Standard & Poor's downgraded its outlook on Emporiki Bank, one of Greece's main lenders and a subsidiary of France's Credit Agricole, to negative from stable.
S&P credit analyst Luigi Motti said in a note that "accelerated deterioration of Emporiki's operating environment will pose additional challenges for the bank to achieve its stated business and financial targets."
The spread between the yields of German and Greek 10-year bonds has widened to over 230 basis points, meaning that Greece now has to pay over 2.3 percentage points more interest than Germany to attract lenders.
Standard & Poor's has placed Greece's long-term sovereign credit rating on "negative" watch, warning that it could be downgraded in the next two months if the government fails to rein in its growing deficit.
The prime minister has ruled out aid from the International Monetary Fund.
Date created : 2009-12-15