Greek fiscal promises return to haunt amid bail-out (News Feature)

May 2, 2010, 13:31 GMT

By Christine Pirovolakis, dpa Eds: epa photo 00000402140066, others, available =

Athens (dpa) - Six month's ago, Greece's newly elected Socialist government insisted that the country's financial woes could not be compared to those of Iceland or Dubai.

Today, as the cash-strapped country sealed a multi-billion euro bailout with the European Union and the International Monetary Fund (IMF), the country proved there was some truth to that statement. If anything, it's economic situation is worse than those other countries'.

The aid package, expected to total up to 120 billion euros (160 billion dollars) over three years, will be the first such rescue of a member of the 16-nation eurozone.

Warning that the financial plan would require major sacrifices from the Greek people, Prime Minister George Papandreou said he would 'do anything to avoid the country going bankrupt.'

'Every Greek will be called upon to make great sacrifices to avoid disaster,' he added.

Those sacrifices amount to budget cuts of 30 billion euros over three years, on top of measures already agreed upon. Those aim to bring a massive budget deficit back to the EU limit of 3 per cent of gross domestic product (GDP) by 2014.

Under the deal, Greece plans to cut the deficit to 8.1 per cent of GDP in 2010, 7.6 per cent in 2011 and 6.5 per cent in 2012.

Salaries and pensions in the public sector would be frozen during the three-year programme and holiday bonuses would be capped at 1,000 euros per year for civil servants and scrapped for those with gross monthly salaries over 3,000 euros.

A value-added tax would be increased from 21 to 23 per cent and a 10 per cent fuel and alcohol tax hike would be applied.

The government also expects to generate additional revenues through a one-off tax on highly profitable companies, as well as with new gambling and gaming licences.

In a nationwide televised address, Finance Minister George Papaconstantinou told Greeks, who have already taken to streets in violent protests, that they had to choose between a rescue or an economic collapse.

He said that Greece's public debt would increase to nearly 150 per cent of GDP, but would then start to fall from 2014.

Experts have said Greece has been guilty of free-spending ways for decades, running up debt equal to 115 per cent of GDP. However, the revelation that official government statistics had also been massaged before and after joining the single European currency added to the sense of crisis.

By agreeing upon a programme of austerity measures with the EU and IMF, Greece has met conditions set for emergency loans, the European Commission said Sunday.

Commission President Jose Manuel Barroso confirmed the hurdle had been cleared, before euro area finance ministers were expected to meet in Brussels Monday to finalize the deal.

He stressed that the spending cuts and the structural reforms Greece committed itself to 'constitute a solid and credible package.'

Athens had insisted it needed help by May 19, the day it is expected to issue a 9-billion-euro bond to refinance its debt in order to avoid a default that could spread a financial crisis to other eurozone countries with immediate deficit problems, such as Portugal and Spain.

But the Greek government now faces an even bigger task of convincing Greeks to accept the draconian measures at a time when the country is already in the midst of a recession.

'The measures are totally unfair. How do they expect us to live?' asked 65-year-old pensioner Mario Granousis.

'The government should prepare itself that people will not take this sitting down.'

Angry protesters and riot police clashed in Athens and the northern port city of Thessaloniki on Saturday after thousands took to the streets in May Day rallies to signal their opposition to plans for the harsh public spending cuts.

According to a recent poll, in a country where one in five lives below the poverty line, more than half of respondents said they would take to the streets if the government agrees to new austerity measures.

Unions, already reeling from austere budget cuts, called a new round of strikes for May 5, saying they impose most of the sacrifices on low to middle income workers.

The public sector union ADEDY, which represents half a million workers, has also called a four-hour strike for Tuesday, on top of a nationwide strike already set for Wednesday.

Large-scale resentment is also evident in Germany, where the large majority of people have expressed deep resentment about rescuing Greece.