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Text by News Wires

Latest update : 2010-05-04

The IMF and the EU have put together a Greek bailout package worth 110 billion euros over three years, a diplomatic source said Sunday. Prime Minister George Papandreou announced the loan agreement and warned of "big sacrifices" for Greece.

REUTERS - Greece has pledged to make deeper budget cuts under a new austerity package that was unveiled on Sunday but will take an additional two years to reduce its deficit below European Union limits.

The deal with the EU and International Monetary Fund (IMF) was welcomed by economists for providing a more realistic picture of the Greek economy and deficit reduction than the government had painted previously.
Under the revised plans, Greece expects gross domestic product (GDP) to contract by 4.0 percent in 2010, compared with a prior government forecast of a 2.25 percent drop. The economy is projected to return to growth in 2012 and not 2011 as previously anticipated.
“The measures being taken now are those that economists have been asking for for years,” said Gikas Hardouvelis, a professor of economics at Piraeus University. “My view is that they are sufficient to bring Greece out of the crisis.”
Finance Minister George Papaconstantinou told a news conference that the package, which will pave the way for a joint EU-IMF rescue expected to total up to 120 billion euros, foresaw new cuts in the budget deficit of 30 billion euros over three years, a higher figure than many had expected.
Q&A: The Greek crisis explained
But the deficit will fall more slowly, dipping to 8.1 percent of GDP in 2010 from 13.6 percent last year, and then easing to 7.6 percent in 2011 and 6.5 percent in 2012. It would not fall below the EU’s 3 percent of GDP limit until 2014.
Forecast debt reduction was also more modest. Previous government forecasts had called for debt to peak at 120.6 percent of GDP in 2011. Under the new plans, it will continue rising for four years, peaking at nearly 150 percent in 2013.
Papaconstantinou said the measures included a rise in value-added tax (VAT) to 23 percent from 21 percent, a further 10 percent hike in fuel, alcohol and tobacco taxes and a further reduction in public sector salaries and pensions.
Greece’s new austerity plan


  • Bring deficit to below 3% of the nation’s GDP
  • Cut budget by 30 billion euros over three years

Anticipated measures:

  • Raise VAT ceiling from 21% to 23%
  • Raise alcohol and fuel tax to 10%
  • Cut public servants two months’ annual bonus
  • Freeze salaries and pensions of public sector employees (The government will not touch salaries in the private sector, but changes in employment law are anticipated)
  • Raise minimum retirement age to 60 from 57
  • Cut public investment projects
  • Allocate funds for bailing out banks
The government appears to have resisted demands for cuts in private sector salaries, which are more difficult for it to control. Instead, it agreed to loosen firing rules which prevent companies from dismissing more than 2 percent of their workforce in a single month.
Changes to severance payment rules will also be introduced, along with a new minimum wage for the young and long-term unemployed.
Costas Panagopoulos, head of the Alco polling group, said this could help the government sell the measures to the public.
“The hundreds of thousands working in the private sector should feel somehow relieved,” he said. “In the short term, this means that the programme will be accepted ... that the government will keep its core supporters.”
But the country’s main public sector union ADEDY vowed to fight the measures, saying they would hit an already weak economy hard. “We will continue and we will intensify our protests,” said Ilias Ilipopoulos, general secretary of ADEDY, which represents about 500,000 workers.
“The government today announced the destruction of workers, pensioners and even the unemployed. It erased all hope for job opportunities and deleted the future of young people.”
Papaconstantinou said the country had no other choice, saying Greeks must decide between “collapse or salvation”.


Date created : 2010-05-02


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