Greece announces new austerity measures

Greece’s prime minister reveals further tax increases to deal with country’s financial troubles.

Greece’s Prime Minister George Papandreou, responding to pressure from the European Union, yesterday (3 March) announced further tax rises and austerity measures in a bid to improve his country’s public finances.

Extra measures include higher taxes on tobacco, alcohol and fuel and an increase of two percentage points in Greece’s rate of value-added tax.

Public employees will have their pay cut by 30%, as bonuses for Easter, Christmas and summer are suppressed.

The government plan aims to save an additional €4.8 billion, or around 2% of gross domestic product.

European Commission President José Manuel Barroso welcomed the extra measures, which the Commission and member states had been asking for. He said they confirmed the Greek government’s “commitment to take all necessary measures” to ensure that it meets a promise to cut its budget deficit by four percentage points this year.

According to Barroso, Greece was “now on track”. He said that his support for the austerity package was shared by Jean-Claude Juncker, president of the Eurogroup, the finance ministers of the eurozone.

The Greek government is expected to launch a bond issue today or tomorrow, hoping to raise around €5bn.

Greece needs to borrow €20 billion from the money markets between now and May to replace existing bonds that are maturing.

Papandreou is meeting German Chancellor Angela Merkel in Berlin tomorrow (5 March) to discuss the situation. Merkel is reported to be the biggest obstacle to a co-ordinated effort to support Greece.

Eurozone pressure

While eurozone governments have said that they are prepared to support Greece, they have ruled out making any firm financial commitments at this stage. Eurozone governments want to maintain pressure on the Greek government to carry out the necessary reforms. They fear that pledging financial aid before it is absolutely necessary would allow the Greek government to go soft on its deficit-reduction programme.

Olli Rehn, the European commissioner for economic and monetary affairs, met members of the Greek government in Athens on Monday to discuss the measures. He is reported to have told Greek ministers they needed to take additional steps to ensure the deficit was cut by the agreed amount.

Finance ministers from the eurozone will discuss Greece’s efforts to reduce its deficit on 16 March.

The European Central Bank issued a statement this afternoon saying that the new measures showed Greece’s “strong commitment” to “achieve the fiscal objectives enshrined in its stability programme”. “This determined fiscal and structural reform programme will benefit Greek citizens by…bringing the economy back on a sustainable medium-term growth path,” the statement said.