Greece
will cut spending and raise revenue by about 10 billion euros ($14.5 billion)
this year as part of a three-year plan adopted today to bring the European
Union’s biggest budget deficit within the EU limit in 2012.
“We will do whatever it takes,”
Greek Prime Minister
George Papandreou
said in a televised speech to his
Cabinet in
Athens
today. “Our country can and is obliged to exit as soon as possible this
vicious circle of misery. We will not retreat; we will proceed quickly.”
The plan, to be presented to the
European Commission tomorrow, aims to cut the shortfall from 12.7 percent of
output, more than four times the EU limit, to 8.7 percent this year. That
reduction will be achieved even though the economy will contract 0.3 percent,
the plan says. The budget deficit will shrink to 5.6 percent next year and 2.8 percent
in 2012.
Concern about the Greek
government’s worsening finances and the credibility of its economic statistics
last month prompted Fitch Ratings, Moody’s Investors Service and Standard &
Poor’s to cut the country’s rating and fueled investor concern about a possible
debt default. The premium that
investors
demand to hold Greek debt instead of German equivalents is at 261 basis
points, six times more than it was two years ago.
Attitude Change
“The decision to present the plan
on TV highlights a significant and welcome change of attitude from the
government, suggesting increased commitment to fiscal consolidation,”
Luigi Speranza
, an economist
at BNP Paribas in London, said in a note to investors. “But the social reaction
to the plan is key and recent announcements of a strike in the public sector
will keep investors concerned.”
Unions representing civil servants
announced a strike for Feb. 10 to protest austerity measures in the plan, which
includes a state-hiring freeze this year and a wage cap for public workers
earning more than 2,000 euros a month. The plan calls for a 10 percent cut in
benefits for state employees and in operating expenditures at all ministries.
It also includes measures to boost
revenue in 2010 by more than 7 billion euros, mostly through raising taxes and
fighting evasion, and more than 3.6 billion euros in spending cuts.
A crackdown on tax dodging is
projected to generate 1.2 billion euros in additional income this year and
sales of unspecified state assets will generate 2.5 billion. Another 1.2
billion will come from increased pension payments, mostly through a clampdown
on evasion of social-security contributions.
Savings from the health-care
system will reach 1.4 billion euros, according to the plan. The government will
cut defense spending by 457 million euros and the reduction in non-salary
benefits in the public administration will bring in 650 million euros, the plan
says.
The Brussels-based commission will
make a recommendation on the plan to European finance ministers, who will rule
on the measures at a meeting on Feb. 15-16.
(
from
Bloomberg)