New Austerity Measures: Athens Turns Screws on Civil Servants as EU Hints at Help

In response to European Union pressure, Greece on Wednesday announced a further round of savings measures worth 4.8 billion euros. The plan calls for tax hikes and a 30 percent reduction in vacation bonuses for civil servants. Berlin has welcomed the move but says no direct aid to Athens will be forthcoming.

Already reeling under deep slashes to public spending, Greeks on Wednesday have been asked to shoulder yet more austerity measures as the country seeks to shrink a massive budget deficit and ward off bankruptcy.

The Greek government announced a combination of cuts and fresh revenues worth €4.8 billion ($6.5 billion) including a pension freeze and a 30 percent cut to holiday bonuses for the country's civil servants. In addition, Athens is to raise sales tax by two percentage points to 21 percent and has hiked taxes on alcohol, cigarettes, luxury cars and other high-end goods. The new austerity package augments previous measures aimed at cutting state spending by €8 billion - €10 billion.

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Photo Gallery: Greeks Tighten Their Belts
"These decisions are necessary for the survival of the country and the economy so that Greece can exit the vortex of speculators and defamation, so that we can breathe and keep on fighting," Greek Prime Minister Georgios Papandreou told reporters on Wednesday.

Athens is under considerable European Union pressure to cut its budget deficit -- which currently stands at 12.7 percent of gross domestic product -- by four percentage points this year to shore up faith in the European common currency, the euro. Earlier this week, European Commissioner for Economic and Monetary Affairs Olli Rehn asked Greece to take further measures after Brussels determined that previously announced austerity measures would not be enough.

'The Right Step'

In addition to its deep budget deficit -- which is more than four times higher than the 3 percent allowed by the treaty governing the European common currency zone -- Athens also faces some €300 billion in sovereign debt. The country must refinance €20 billion of that debt by the end of May and a total of €53 billion this year. With investors concerned about Greece's ability to continue shouldering that debt, the country has had difficulties raising sufficient funds on the bond markets. A 10-year bond issue has been twice delayed as Athens tries to wait out market turbulence in the hopes of cheaper borrowing costs.

The German government welcomed the additional Greek austerity measures on Wednesday. Berlin "is confident that they will be greeted with a clear show of confidence" said deputy government spokesman Christoph Steegmans.

German Finance Minister Wolfgang Schäuble said that the new Greek measures show Athens is on the right track. "It is now decisive that Greece implements these resolutions quickly and completely." German Chancellor Angela Merkel added that the austerity measures were "the right step."

Speculation increased on Wednesday that the European Union may be working on a package to help Greece as a way to halt the euro's slide. Speaking in Brussels, European Commission President Jose Manuel Barroso said there was "intense debate" within the euro zone over how to assist members who face bankruptcy. "The concrete instruments, we will present them in due time," he said. "We have to have solidarity in the European Union."

Bleeding

Barroso's comments came during the announcement of a new economic plan for the next decade in the European Union. In addition to setting goals to lower unemployment and increase funding in research and development, Barroso also called for closer economic policy coordination in the EU. He said Brussels should more closely monitor economic performance in member countries to avoid the kind of crisis that has struck Greece.

In a televised address on Wednesday, Papandreou said, "We are awaiting European solidarity, the other side of this agreement." In mid-February, finance ministers from the euro zone promised to help Greece from sliding into bankruptcy, but declined to provide details as to what such a plan might look like. More recently, EU leaders -- led by Merkel -- have been insisting that no bailout of Greece would be forthcoming.

Still, with other euro-zone countries likewise facing high budget deficits and mountains of debt, more steps may be needed to prop up the euro. Any such steps are likely to be dependent on support from Berlin -- even as a wide majority of German voters are steadfastly against help for Greece. Papandreou will be in Berlin on Friday for talks with Merkel before heading to Paris on Sunday, though the German government said on Wednesday that Berlin was not planning to offer aid to Greece.

In response to the new austerity measures, Greece's 300,000 civil servants announced a 24-hour strike in protest, scheduled for March 16. "These measures will make us bleed to death financially. The measures will have an unbelievable effect on Greek society," said a union spokesperson on Greek radio.

cgh -- with wire reports

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