Greece embarks on new austerity program | Business| Economy and finance news from a German perspective | DW | 03.03.2010
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Greece embarks on new austerity program

The Greek government has announced a new austerity plan worth 4.8 billion euros ($6.5 billion) in a bid to combat bankruptcy. It has not ruled out seeking help from the International Monetary Fund.

Greek euro coin

Public spending will be cut in Greece

Greece's cabinet approved the sweeping austerity measures on Wednesday, including a two percent rise in sales tax to 21 percent, a pension freeze, cuts to civil service bonuses, and steeper duties on tobacco and fuel. It is the third such measure taken in as many months.

The government in Athens said it was now awaiting support from the European Union.

"We are now justifiably expecting EU solidarity," Prime Minister George Papandreou said after briefing President Carolos Papoulias. He did not rule out the option of seeking assistance from the International Monetary Fund (IMF) in dealing with its debt crisis if the EU failed to offer help, radio reports said. Greece is already receiving IMF advice on how to deal with the crisis.

The eurozone finance ministers' group, Eurogroup, and European Commission leaders welcomed the additional budget cuts, but said nothing about possible EU aid the country might receive in return.

"Greece's ambitious program to correct its fiscal imbalances is now credibly on track," Eurogroup president Jean-Claude Juncker, who is also Luxembourg's prime minister, said in a statement. Commission president, Jose Manuel Barroso, shared these sentiments.

"This announcement confirms the Greek government's commitment to take all necessary measures to deliver the program's objectives and in particular to ensure that the four percent of GDP deficit reduction target for 2010 will be met," Barroso said in a separate statement.

Angry population

Greek Prime Minister George Papandreou

Greek Prime Minister George Papandreou said his country is facing a "wartime situation"

The cuts have prompted many Greeks to take to the streets in protest. In a show of discontent, hundreds of pensioners clashed with riot police after attempting to break through a police cordon to get to the prime minister's official residence on Wednesday.

"You give money to the rich but nothing to us," they yelled.

But Papandreou is remaining firm. Describing the situation as akin to wartime, he has told all Greeks that they must be prepared to make painful sacrifices.

Merkel in secret talks on plans for Greece

Papandreou will fly to Berlin on Friday for talks with German Chancellor Angela Merkel, followed by a meeting in Paris on Sunday with French President Nicolas Sarkozy.

A German government spokesperson said on Wednesday that Berlin welcomed Greek moves on taking further austerity measures, but said the country must implement them alone.

On Tuesday night, Merkel held late-night crisis talks with senior government officials on a course of action should Greece need a bailout, German media reported on Wednesday.

The mass circulation Bild daily reported that German politicians are taking the same line as the European Commission, which said that Greece must get its fiscal house in order before it can expect any outside help. But time is of the essence. Papandreou has said the country's financial needs are only assured until mid-March.

As Europe's biggest economy, Germany is regarded as first in line should Greece require a bailout. On Sunday, Merkel told ARD television that "there is absolutely no question of it."

"Right now we can help Greece by stating clearly that it has to fulfill its duties," Merkel said, adding that Greeks must now show courage in order to restore their country's "lost credibility."

Sentiment among the German public is strongly against lending a hand to Greece. Analysts said such a move would be political suicide for Merkel.

"I don't think Angela Merkel would survive transferring money to Athens instead of to Hanover or Leipzig," Citigroup economist Willem Buiter told the business daily, Handelsblatt.

German media tough on Greece

According to Greece's parliamentary president, Greeks aren't looking to the German people for salvation. In an open letter to Stern magazine to be published on Thursday, Philippos Petsalnikos appealed to the German people not for money, but for solidarity and a fair portrayal of the country's troubles.

Cover of Focus magazine showing Venus de Milo

Last week's Focus cover angered many Greeks

"We Greeks do not expect the Germans to 'save' us," Petsalnikos wrote. "That's something we have to do ourselves. Greece doesn't need your money, rather your solidarity and support in defending itself against attacks from international carpetbaggers. If Greece falls victim to them, it will be the first domino to fall."

Petsalnikos was responding to the animosity towards Greece that has been evident in some German media reports of late, with editorials claiming that the Greek government is "corrupt" and "fraudulent."

The cover of last week's Focus magazine also featured a photo of the Greek statue Venus de Milo making an obscene hand gesture with the caption: "A cheat in the euro family."

Greece's ballooning budget deficit is undermining the credibility of the entire eurozone, experts said, with EU partners fearing that the instability may spread to other eurozone countries with big deficits, such as Spain and Portugal.

Greece has until March 16 to convince fellow EU members that its austerity program is enough to solve its budget problems.

Editor: Rob Turner

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