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Greece Unveils New Austerity Measures

Friday, March 5, 2010

Designed to generate a further EUR4.8bn for the country’s economy, the Greek government has announced a new wave of austerity measures, including a raft of additional tax measures.

In a determined bid to enable Greece to reach its budgetary objectives this year, the government’s latest austerity programme was approved during an emergency council of ministers meeting.

Government spokesman George Petalotis unveiled details of key fiscal measures contained in the plan, including a 2% rise in the value-added tax rate, from 19% to 21%, which will serve to generate in the region of EUR1.3bn for the government, or 0.5% of GDP.

Taxes levied on alcohol, tobacco, fuel and luxury products are also set to rise. Petalotis announced a 20% increase in the tax levied on alcohol and tobacco, as well as an eight cent per litre rise in the cost of petrol, and a 3 cent per litre rise in the cost of diesel. The price per litre of fuel had already risen by almost 25 cent at the beginning of February. The cost of cigarettes is due to rise by 63%, while the government is also planning a significant increase in property tax.

According to the Petalotis, the government is currently facing an enormous battle ahead, as the Greek economy in its worst state for years, with a deficit estimated at EUR30bn and debt of around EUR300bn.

The tax law containing these new initiatives is due to be adopted shortly by the Greek parliament. In view of the government’s latest proposals, Greek Prime Minister George Papandreou is eager to receive vital support from the European Union, otherwise Athens will seek assistance from the International Monetary Fund.

While the European Commission wholeheartedly welcomed the government’s new programme, Adedy, the country’s main public sector union fiercely criticized the measures, warning that it would take to the streets in protest. Adedy has already called for a 24 hour strike to take place on March 16, and protests have already taken place against the proposed freeze on pensions, also announced as part of the plans.

Nevertheless, having underlined the “catastrophic” situation of the Greek finances and evoked the nightmare of potential insolvency, Prime Minister Papandreou is adamant that these “severe measures” are necessary. Indeed, Papandreou has expressed his full commitment to taking whatever decision necessary in order to avoid the worst, and to save both the country’s economy and independence.