Greek Prime Minister George Papandreou announced an additional 4.8 billion euros (US$6.6 billion) of deficit cuts yesterday as he tried to convince European allies and investors that he could tame the region’s biggest budget gap.
The measures include higher tobacco, alcohol and sales taxes that seek to raise 2.4 billion euros in revenue, Greek Deputy Citizen Protection Minister Spyros Vougias said after a Cabinet meeting in Athens to pass the plan.
The government will also cut by 30 percent three additional salary payments civil servants receive at holiday times, a move union leaders have already warned will spark new protests.
PHOTO: EPA
Greece is signing up to even greater austerity measures after EU leaders called for Papandreou to adopt additional cuts before allies would come to its aid.
The announcement comes as Papandreou prepares to meet German Chancellor Angela Merkel tomorrow and French President Nicolas Sarkozy on Sunday to discuss Athens’ financing woes.
The measures, the second set of steps taken since Greece presented its original deficit-cutting plan to the European Commission on Jan. 15, aim to insure that Greece makes good on its pledge to trim a deficit of 12.7 percent of GDP to 8.7 percent this year.
Yesterday’s measures are the equivalent of 2 percentage points of GDP, about half of Greece’s pledged deficit reduction for this year.
The package includes raising the main value-added tax to 21 percent from 19 percent and increasing alcohol and tobacco taxes for a second time this year.
Civil servants will also see the reduction in benefit payments increased to 12 percent from the 10 percent in the original plan.
Greek bonds advanced for a fourth day yesterday on the prospect that the deficit measures might lead to EU help. The yield on the benchmark 10-year bond fell 12 basis points to 6.03 percent, the lowest since Feb. 11. Premium investors’ demand to buy Greek government debt over comparable German bonds, the European benchmark, fell 11 basis points to 2.93 percent.
Concern about Greece’s ability to finance its debt pushed that premium to 396 basis points on Jan. 28, the highest since the start of the euro in 1999, making it more expensive for Athens to sell bonds.
“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,” Papandreou said on Tuesday.
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