€4.8bn 'austerity' package approved by Greece
GREEK Prime Minister George Papandreou's government yesterday approved an additional €4.8bn in spending cuts and tax rises as he tries to convince European allies and investors that he can reduce the euro area's biggest budget gap.
The new austerity package includes an immediate freeze on pensions, further salary cuts for public sector workers and sharp increases in excise and value added taxes.
There will also be a 30pc cut in three bonus salary payments civil servants receive at holiday times. Trade unions joined leftwing politicians in saying the measures would spark a new round of strikes, starting next week.
Pensioners marched to the Finance ministry in Athens yesterday to demonstrate against planned changes to reduce the cost of the pension system.
Mr Papandreou risks a backlash at home by agreeing to greater austerity measures after the European Union demanded more cuts before member states would come to Greece's aid.
The announcement comes as Mr Papandreou prepares to meet German Chancellor Angela Merkel on March 5 and French President Nicolas Sarkozy on March 7 to discuss Greece's financing woes.
"Today's announcement is as much about giving other EU governments more political capital in the event that they do eventually need to provide liquidity to Greece," said Gary Jenkins, head of credit research at Evolution Securities in London.
"They can make the claim to their own taxpayers that Greece has taken further measures as suggested by the EU." Markets have reacted positively to the tougher measures.
Interest rates on Greek government debt fell for a fourth day on the prospect the new measures might lead to EU help.
"If our country doesn't manage to borrow with similar terms as is normal for a European Union country, then the consequences will be something more than catastrophic," Mr Papandreou said yesterday. "Our responsibility is to avoid this catastrophe."
The European Central Bank may introduce measures to ease banks' access to funds. It may lend assets known as "covered bonds" back to financial institutions for a fee.
These would have been bought by the ECB to provide previous funding to cover banks' loans and deposits. (Bloomberg)