EU calls on Greece to take further measures to cut deficit

 

EUROPEAN MONETARY affairs commissioner Olli Rehn yesterday called on Greece to implement further measures to ensure its deficit reduction target of 4 per cent this year.

“The measures outlined in the Greek stability plan over January and February certainly go in the right direction but . . . additional measures of fiscal consolidation are necessary so that the deficit reduction target for this year can be met,” Mr Rehn told journalists in Athens. He described meeting this target as “the one single most important thing for the moment”.

Greece has pledged to reduce its yawning 2009 deficit of 12.7 per cent of GDP to 8.7 per cent this year. It has so far reduced public salaries by 4-6 per cent and raised petrol tax. However, EU, European Central Bank and International Monetary Fund auditors who visited the Greek finance ministry last week reportedly found a €4.5 billion shortfall in the execution of the stability plan.

Even after implementing the first tranche of measures, Greece came away empty-handed from an informal EU summit in early February to discuss a possible aid package. Asked repeatedly whether the EU was considering a a financial assistance package, Mr Rehn said cryptically: “We are ready to put in place a plan for co-ordination, and the euro area has the means to ensure the stability of the euro area as a whole.”

He flatly denied that Prime Minister Yiorgos Papandreou and senior cabinet members whom he met had asked for “direct financial support”.

France and Germany are reportedly working on extending to Athens loan guarantees or bond purchases, but only in the event that Greece cannot sell its bonds on international markets.

The further austerity measures, due to be announced this week, could take several forms.

For the public, the government is widely expected to escalate last month’s petrol tax rise. It is also reportedly considering a VAT increase. For public servants, who last week went on strike, there could be another cut in benefits above salary.

In the longer term, the government is under pressure from the EU to reform its pension entitlements. Greece is an ageing society, with 2.7 million retirees supported by 4 million workers.

Many Greek commentators have decried the lack of more concrete support to Greece as a lack of solidarity.