EU orders Greece to cut public sector wages in deficit battle
GREECE has been told to cut public sector wages and save 10pc of current spending in a contingency fund as part of an EU-approved plan to cut its budget deficit.
The EU Commission took on a role normally associated with the IMF (International Monetary Fund) in demanding tough medicine from Greece.
George Papandreou, Greece's prime minister, has already announced an extension of a public sector wage freeze and an increase in fuel taxes.
Unlike the IMF, the EU will provide no loans for Greece. But failure to reach agreement with Brussels might have made it impossible for Athens to borrow on the markets, where it is already paying close to 6pc for funds to cover its deficit of 12.7pc of GDP.
EU Monetary Affairs Commissioner Joaquin Almunia said the commission would demand tougher action if Greece did not fulfil the terms of the deal, due to be approved by finance ministers later this month.
"We are endorsing the Greek programme. But we know that the implementation of the programme will not be easy," Mr Almunia said. "It's extremely challenging, but absolutely necessary and urgent
Separately, Mr Almunia hinted that Ireland may have suffered a "permanent" decline in competitiveness since joining the euro region, along with Greece, Portugal and Spain.
"In those countries we can observe a permanent loss of competitiveness since they became members of the Economic and Monetary Union."
Labour costs in the four countries have risen more than 4pc a year on average in the last decade, compared with 2.1pc in Germany.