Deal agreed

Deal agreed, tough steps announced

More tax hikes, spending cuts to hit home

JOHN KOLESIDIS/REUTERS

Finance Minister Giorgos Papaconstantinou prepares to announce the latest austerity measures to cut Greece’s public deficit and trigger the release of up to 45 billion euros of loans this year from the International Monetary Fund and the other 15 countries in the eurozone. Greece could receive another 65 billion euros over the next two years.

In return for receiving emergency loans of 110 billion euros from the International Monetary Fund and the eurozone over the next three years, Greece yesterday announced that it was adopting the most stringent austerity measures the country has seen in its modern history.

Prime Minister George Papandreou said the agreement would result in “an unprecedented support package for an unprecedented effort by the Greek people.” “These sacrifices will give us breathing space and the time we need to make great changes,” he said in a televised address following an emergency Cabinet meeting.

Shortly after, Finance Minister Giorgos Papaconstantinou unveiled the measures agreed by the government in order to save 36.4 billion euros by 2014 and reduce Greece’s public deficit from 13.6 percent of gross domestic product in 2009 to 2.6 percent in 2014. Under the plans, it is projected that Greece will not experience any growth until 2012.

Under the key measures in the public sector, public servants will lose their 13th and 14th monthly salaries and their supplemental pay packages will be cut by a further 8 percent after a 30 percent reduction earlier this year. They will receive a maximum of 1,000 euros combined for Easter, summer vacation and Christmas bonuses. The second installment of a handout to low-income workers, which PASOK set up when it came to power, will be frozen. Also, the Public Investment Program will be reduced by 1.5 billion over the next year. The government decided not to impose a salary cut in the private sector but is introducing legislation that will make it easier and cheaper to fire employees. Each of the three value-added tax rates will rise, from 23 to 25 percent, from 10 to 11 percent and from 5 to 5.5 percent, bringing in 1.8 billion euros by the end of next year. Private and public sector pensioners will receive only 12 monthly payments, as their 13th and 14th installments will also be cut. Changes to the pension system will require people to work longer before they retire.

Main opposition New Democracy leader Antonis Samaras criticized the government’s handling of the crisis and reiterated he would not have appealed to the IMF for help. He stopped short of saying whether he would vote against the measures. The Communist Party (KKE) and the Coalition of the Radical Left (SYRIZA) both encouraged citizens to voice their opposition.

The ADEDY civil servants’ union vowed to block the measures, which it claimed “make the rich richer and the poor poorer.” The union backlash against the measures is due to begin today, when workers at all the country’s municipalities will go on strike to protest reforms in local government that will lead to job cuts. The protesters will gather at Karaiskaki Square at noon before marching to Parliament.

There will be a 24-hour general strike on Wednesday, which will ground airplanes and disrupt public transport, while teachers are staging a 48-hour-strike from tomorrow.

Eurozone and IMF preparing to release funds

The eurozone nations agreed yesterday to provide the bulk of 110 billion euros for Greece’s support package, with the possibility that some European commercial banks may provide the necessary funds.

“We have decided to activate the support plan for Greece,” the head of the Eurogroup, Jean-Claude Juncker, said after a meeting of eurozone finance ministers in Brussels.

It now remains for the leaders of the 16 eurozone members to meet in the Belgian capital on Friday to sign off on the transfer of the funds.

Juncker said the 16 eurozone ministers agreed to, where necessary, present the plans to their national parliaments and stressed there was “no question” of the EU leaders reversing the much-awaited decision when they meet.

The Luxembourg prime minister also said that each country would examine whether local banks would want to contribute to the rescue package. “All the ministers agreed to see, together with banking sector representatives of their respective countries, what voluntary contributions the banks could make.”

Meanwhile, the International Monetary Fund, which will cover roughly a third of the support package, is expected to approve the deal “within the week,” IMF managing director Dominique Strauss-Kahn said in a statement.

“Our collective effort will contribute to the stability of the euro, will benefit all of Europe and will help promote global financial stability and a secure recovery in the global economy,” Strauss-Kahn said.

Prime Minister George Papandreou also spoke to US President Barack Obama last night to discuss the agreement reached with the IMF and the eurozone members, according to a statement from the premier’s office.