Greece is seeking EU approval for an austerity plan it presented this month to reduce its budget deficit to below 3 percent of GDP by 2012 from 12.7 percent in 2009 and avoid a debt crisis seen as a threat to the eurozone. The Greek finance ministry said in a statement the measures outlined in the report were already included in its own deficit-cutting programme. It added the European commission had already expressed its backing for the government plan.
"There is no issue of the EU rejecting the Greek growth and stability programme," it said. The European Commission declined to comment. The Greek plan does not envisage nominal pay cuts but it includes reductions in special allowances which make up a large chunk of Greek civil servants' overall income. This would translate roughly into a 3 to 4 percent cut in the public wage bill, labour unions say.
Under the headline "Urgent measures to be taken by 15 May 2010", the EU document will tell Greece to "cut average nominal wages, including in central government, local governments, state agencies and other public institutions." The EU will also urge Greece to introduce advance tax payments for the self-employed and possibly a tax on luxury goods, according to the document, excerpts of which were printed by Ta Nea. Most other recommendations, as reported in the paper, are already part of the Greek plan.
Greece has been hit hard on international markets, with bond yields soaring and shares plummeting, after the country's new Socialist government revealed in October its budget deficit was twice as big as previously announced and more than four times the eurozone ceiling of 3 percent of GDP. Concerns that Athens may not be able to service its debt have put pressure on the euro and raised questions over whether fellow eurozone member states would come to Greece's rescue.
There are also growing worries that the Greek debt crisis could spill over to other weak members of the currency bloc, such as Spain, Portugal, Ireland and Italy. Prime Minister George Papandreou's government, which came to power on a promise to tax the rich and help the poor to get Greece out of recession, has announced nominal wage freezes for civil servants earning more than 2,000 euros a month. It plans to award pay increases in line with inflation to all others.