Greek finance chief: new austerity drive essential

Greek presidential guards take part in a changing of the guard ceremony outside parliament as a protester waves a Greek flag during a peaceful rally for the 13th day running, organized through social networking sites, in Athens, Monday, June 6, 2011. Greece’s prime minister embarked on a drive Monday to push new austerity plans through Parliament, despite increasing dissent within his party and big demonstrations in the country’s two largest cities. (AP Photo/Petros Giannakouris)

ATHENS, Greece (AP) — A new five-year package of painful austerity measures is essential to keep Greece afloat and eventually pull it out of its severe debt crisis, the finance minister said Friday. Without it, the country will be left to default on its debts.

Greece has been slipping on reform targets required by its rescue package from the International Monetary Fund and the European Union, which have threatened to cut the euro110 billion ($161 billion) lifeline.

The new austerity — which the Cabinet sent to Parliament for a vote later this month — is designed to put it back on track.

“We have a choice between a difficult path and a path of destruction,” George Papaconstantinou said as he presented the new plans. “This government will never choose the path of destruction, it will always chose the difficult path. … We must fix what’s wrong or this country has no future.”

Papaconstantinou noted the new austerity plan, which will run to 2015, must be passed in Parliament for the country to receive in July the next euro12 billion installment of its bailout.

The 300-member legislature, where the governing Socialists hold a six-seat majority, will vote on the plan by the end of June, while an additional implementation law will be voted on in early July.

But the austerity measures may still not be enough to guarantee Greece gets all its bailout funds next month.

The IMF will not give its part of the loan installment unless a solution is found to the country’s funding gap next year. Initial agreement had expected Greece to be able to return to borrowing on the international bond market in 2012, but that will be almost certainly impossible because of continued high interest rates.

“For the disbursement of the next tranche … it will be difficult for the markets to open in 2012, so other forms of funding must be found,” Papaconstantinou said.

European countries have been discussing how to resolve the issue, possibly with a second bailout. Eurozone finance ministers meeting in Brussels on June 20 and EU leaders gathering on June 23-24 are to discuss the issue.

Papaconstantinou said it was unclear how much Greece might receive in such a second package.

“I cannot be the one — since no decision has been made — who will speculate how high the level (of funding) will be. And I will not do it. But the funding needs of our country are well known — they are well known for 2012, they are well know for 2013 and they are well known for 2014,” he said.

He noted, however, that the country would move to a primary surplus in 2012.

The new austerity measures slash spending and hike taxes between now and the end of 2015 — two years beyond the current government’s mandate. They also include a euro50 billion privatization drive for the same period.

The new austerity, and the fact that strict measures imposed in the past year did not produce the results the government had hoped for, have led to widespread anger. Frustrated Greeks have taken over the capital’s central Syntagma Square, setting up a tent city in a sit-in. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.

Papaconstantinou said some pain was inevitable.

“When you take corrective measures, some people will lose money. There’s no doubt about this. But we are trying to do this in the fairest possible way,” he said. “When you wade across the river, you get wet, many people get wet. But you can’t stop in the middle, or the current will carry you away.”

The minister said cuts would be made to defense spending, and that over the next few years 150,000 staff would be reduced from the bloated civil service, which has about 700,000 staff. A hiring ratio of one new hire for every 10 retirements or departures would be imposed, he said.

“The main thrust of this effort is structural in nature, changing the way the public sector works and is structured,” the minister noted.

Other measures include a renewed push to crack down on tax evasion by tightening the criteria by which people are taxed on their estimated cost of living, rather than on their declared income. Greek authorities are also seeking ways to increase “the repatriation of wealth” after worried Greeks sent their money outside the country.

“Regarding capital flight abroad, we have started negotiations with Swiss authorities and we have significant information on Greek deposits abroad,” Papaconstantinou said.

He noted the government was also considering lifting the banking confidentiality of people who have held or currently hold “positions of authority,” opening up their bank accounts to scrutiny.

Without the new austerity drive, Greece’s debt — currently projected to reach about 160 percent of GDP this year — would reach nearly 200 percent by 2015.

Decisions on amending property tax, lowering the income tax exemption level and whether to impose more taxes on soft drinks and natural gas have not been taken yet, the minister noted, adding that the details would go into the supplementary legislation rather than the main draft bill.

Authorities will, however, impose an additional tax on pleasure boats and swimming pools — already subject to higher taxes — for this year.

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