Greece today unveiled fresh spending cuts of more than €4 billion in a bid to deal with an unprecedented financial crisis.
Plans include increasing VAT to 21 per cent and reducing bonuses for civil servants.
Prime Minister George Papandreou, who has said the country is in a “state of war” fighting for its national survival, hopes the measures will give his government breathing space to borrow an expected €4.5 billion from the bond markets over the next few days.
The measures, set to be backed by the European Commission later, appeared to have received early support by the markets.
Greece has an estimated €18 billion in debt due to be paid in April and May so the government will have to tap the markets for more cash and for that, firmer pledges of support from other eurozone countries are still likely to be required, said Ben May, European economist at Capital Economics.
“The Greek PM’s meeting with Angela Merkel on Friday could be crucial,” he added. Mr Papandreou is to travel to Paris to meet with French President Nicolas Sarkozy on Sunday after his visit to Berlin.
Government officials said the measures would save the government €4 billion.
They said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and holiday bonuses by 30 per cent each, and a 2 per cent increase in VAT from the current 19 per cent.
The new austerity package comes after European Union officials told Athens to make deeper spending cuts.
Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.
Mr Papandreou said all Greeks would have to accept painful sacrifices, and he warned of “catastrophic” consequences unless the country can borrow on international markets at lower lending rates.
Greeks have their annual salaries split into 14 monthly instalments, with the last two considered holiday bonuses. Unions have said abolishing the 14th salary would be tantamount to a “declaration of war.”
“It is a very difficult day for us ... These cuts will take us to the brink,” said Panayiotis Vavouyios, the head of the retired civil servants’ association.
“Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace.”
The Greek national debt has reached €272 billion. Greece plans to borrow €49 billion through sovereign debt issues this year.
PA