Greece announces more spending cuts
More strikes planned as government confirms third round of austerity reforms.
Last Modified: 03 Mar 2010 14:09 GMT
Papandreou compared his country's fiscal crisis to a 'state of war' [EPA]

Greece's cabinet has approved a sweeping new austerity programme, the third in as many months, in a drive to rein in a bulging budget deficit and secure European financial support.

A government spokesman said that the move would yield $6.5bn, half of which would come from spending cuts and another 50 per cent from tax increases.

The measures include increasing value added tax by 2 percentage points to 21 per cent, cutting public sector salary bonuses by 30 per cent, increasing tax on fuel, tobacco and alcohol, as well as freezing state-funded pensions this year.

Following the announcement, George Papandreou, the country's prime minister, said: "We are now justifiably expecting EU solidarity."

Painful sacrifices

In a dramatic speech to members of his ruling PASOK party on Tuesday, Papandreou had compared his country's fiscal crisis to a war and warned he would have to take harsh and possibly unfair measures.

Papandreou said all Greeks would have to accept painful sacrifices, and warned of "catastrophic" consequences unless the country can borrow on international markets at lower lending rates.
Wednesday's measures follow a visit to Greece on Tuesday by Olli Rehn, the EU economic affairs commissioner, who called on the country to do more to reign in a budget deficit that has shaken confidence in the eurozone.

Rehn said: "It is now up to the government what additional measures it will take.

"I trust that the additional measures will meet the deficit targets in order to regain credibility."

More strikes

Ahead of Wednesday's cabinet meeting, unions had already strongly condemned the expected cuts.

The Adedy union, Greece's largest public sector union, called for a 24-hour strike on March 16 to protest against the measures.

The union, which has around 300,000 members, said rallies would also be held on Wednesday, as well as March 8 and March 12.

The main tax service union, which has a membership of about 15,000, said it would hold a 48-hour strike lasting from March  8 until March 9.

The union has already held three strikes in the past month.

On Tuesday, around 30,000 taxis drivers across Greece went on strike against a reform that would force them to provide receipts and keep accounts in order to increase tax income and eliminate fraud.

Berlin meeting

Athens first came under fire from member EU states when it revealed in October that its deficit would be 12.7 per cent of GDP in 2009, over four times the eurozone's three per cent limit.

The government had already committed to a series of cuts in public sector spending and tax raises in a bid to restore investor confidence.

Greece's ballooning budget deficit and its problems in reigning it in have shaken faith in the strength of the euro, with EU partners fearing that the unstable market will spread to other eurozone members that have big deficits, such as Spain and Portugal.

Papandreou is due to travel to Berlin on Friday to meet Angela Merkel, the German chancellor, who had demanded additional fiscal steps from Greece before considering any European financial safety net for the eurozone's weakest economy.

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