The Greek government is expected to outline a new austerity package of about €4 billion ($5.42 billion) on Wednesday in an effort to cut its huge budget deficit by four percentage points this year, government officials said Tuesday.
"The new package will most likely be announced on Wednesday. First there will be a cabinet meeting to seal the measures and an announcement will follow," one official said.
Another official said Greece's debt management agency is preparing a 10-year bond hoping to raise between €3 billion and €5 billion. "It will be within days of the announcement of the austerity package. Soon after," he said. "We need to go to the market very soon with the 10-year note because we risk ending up with no money." the second official said.
Greece's civil servants union ADEDY said that it would stage a 24-hour strike in the middle of the month to protest against the new measures.
"We are meeting now to decide on the day. It will either be March 15, 16 or 17. The civil servants, which are the lowest paid in Greece, are paying the price for this crisis. Enough in enough," ADEDY President Spyros Papaspyros said.
Greece is under intense pressure from the European Union and financial markets to bring down its budget gap, which hit an estimated 12.7% of gross domestic product last year, more than four times the limit set by the EU. The Socialist government has pledged to cut that deficit to 8.7% of GDP this year, and below the EU's 3% limit by 2012.
To meet those goals, the government outlined in January a series of spending cuts and tax increases that it said would result in some €8 billion to €10 billion in savings and additional revenue.
So far, those measures include a freeze on civil service wages, cutting public-sector entitlements by 10% on average, a fuel tax increase, and closing dozens of tax loopholes for certain professions—including some civil servants—who now pay less than their fair share in taxes.
But Greece's European partners are unconvinced. Since the EU issued its rhetorical support for Greece Feb. 12, EU members like Germany and France, as well as others, have demanded that Greece should take further steps to close its budget gap before they would commit to any specific financial support for the country.
According to the first official, the new package is likely to include an increase in the current value-added tax rate of 19% by two percentage points, more cuts in civil service entitlements, a freeze in pensions and higher duties on luxury items, like boats and expensive cars.
The EU has also asked Athens to cut one of two extra months of pay that public-sector workers now get over and above their normal 12-month salary—a move the government is resisting.
The new bond deal is widely seen as a test of the Greek government's ability to raise money in capital markets to finance its operations and retire old debt. A successful bond sale will demonstrate that the market believes either that Greece can fix its fiscal problems or that Europe will come up with an effective bailout to solve short-term worries.
Greece needs to borrow €54 billion this year and has so far raised about €14 billion. It wants its EU partners, especially Germany and France, to ask state banks to buy Greek debt.
Athens has to pay about €22 billion in bond maturities in April and May.