THE GREEK government is yielding under EU pressure for fresh austerity measures with the imminent introduction of new cutbacks and taxation increases worth some €4.8 billion.
As Greek prime minister George Papandreou prepares for a key meeting on Friday with German chancellor Angela Merkel, moves to take additional corrective action have come swiftly after a visit to Athens by EU economics commissioner Olli Rehn.
At issue in current high-level talks is the scope of any EU rescue plan for the country to avert the threat of a sovereign default within the euro zone. The European authorities hope to avoid that by compelling Athens to put its own house in order through the adoption of swingeing austerity measures.
The Greek financial emergency has weakened the euro, which fell yesterday to its lowest level against the US dollar for 10 months, and put pressure on the premium that other debt-dependent members of the single currency pay to raise money on the international capital markets.
Battling for months to overcome a collapse of market confidence in his country’s debt, Mr Papandreou travels next week to Washington for a high-profile meeting with US president Barack Obama.
The Greek cabinet discussed the cuts yesterday afternoon as the country’s biggest public sector union called a strike for March 16th, the day that EU finance ministers plan to review the country’s fiscal situation.
Mr Papandreou’s administration resisted taking new steps to tame its budget deficit, the euro zone’s biggest.
However, the decision in principle to adopt new changes comes after a review of the country’s finances by experts from the EU Commission, the European Central Bank and the International Monetary Fund (IMF).
Sources briefed on the findings of the review said the European authorities now want Mr Papandreou to take new measures worth the equivalent of 1.5 per cent of gross domestic product (GDP). They believe such measures are required to help Athens achieve the target of reducing its deficit this year to 8.7 per cent from 12.7 per cent in 2009.
The same sources said the measures are likely to be made public before Mr Papandreou’s engagement with Dr Merkel, whose administration is likely to be the prime participant in any bailout of the beleaguered country.
EU leaders last month pledged extraordinary fiscal support for Greece “if needed”, a move followed by the imposition by EU finance ministers of a 28-day deadline on Athens to demonstrate that its current austerity plan is strong enough to realise the targeted budget cut.
