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Europe
EU agrees $146bn bailout for Greece
Euro ministers sign off on unprecedented aid package to rescue nation's indebted economy.
Last Modified: 03 May 2010 07:24 GMT
Papaconstantinou, left, said the austerity cuts would save $40bn over three years [Reuters]

The European Union and the International Monetary Fund (IMF) have agreed a $146.2bn bailout package over three years to rescue Greece's indebted economy.

Finance ministers from the 16 nations that use the euro currency endorsed the plan on Sunday after the Greek government announced a series of budget cuts and tax hikes.

Under the rescue plan, the EU will provide $106bn and the IMF will provide the rest.

The package, designed to prevent Greece from defaulting on its debt, must be approved by each government of the 15 other euro zone members before it can be handed over to Athens.

Germany has been the strongest opponent to the bailout, but Rainer Bruederle, the economy minister, said there was a "good chance" of getting parliamentary approval by next Friday.

However, he said Greece had to implement its new so-called austerity programme "quickly" and "to the letter".

"The programmme is without alternative to safeguard the stability of the euro," Angela Merkel, the German chancellor, said on Sunday.

Stemming the crisis

Greece and its international backers hope the rescue package can stem a crisis that has shaken markets worldwide and stoked fears of contagion to other eurozone members like Portugal, Spain and Ireland.

MEASURES INCLUDE:

  Public sector
  All reductions in salaries, benefits and allowances apply to members of parliament, government officials and employees
  Reduce allowances by eight per cent in the public sector and three per cent in the wider public sector (utilities, etc.)
  Capping annual holiday bonuses and axing them for higher earners
  Establish a uniform pay-scale from 2011
  Freeze all public sector salaries until 2014
  Pensions/Retirement
  Calculate pension payments based on average over entire course of working life
  Limit or abolish early retirement
  Banning increases in public sector salaries and pensions for at least three years
  Taxes
  Increasing VAT from 21 per cent to 23 per cent
   Raising taxes on fuel, alcohol and tobacco taxes by 10 per cent
   Taxing illegal construction
Source: Agencies

Al Jazeera's Alan Fisher, reporting from Brussels, said the decision to activate the financial rescue package is "a sign that the situation had deteriorated over the last five days".

"As Greece's financial problems increased during the week with their bond status being reduced essentially to junk, the euro was also being affected not just in Europe but around the world.

"Stock markets were shipping the euro out, investors were leaving it very quickly indeed - so they knew they had to do something," he said.

"As a result, they have come up with a deal which really says that Greece has to make some serious cuts in public spending, has got to start freezing salaries as well.

"There are some serious times ahead for the Greek population as they try to meet the requirements of this deal worked out by the euro zone countries, the International Monetary Fund and of course the European Central Bank."

George Papaconstantinou, the Greek finance minister, said the austerity measures include a rise in value-added tax (VAT) to 23 per cent from 21 per cent, a 10 per cent hike in fuel and alcohol taxes and a further reduction in public sector salaries and pensions.

He said the cuts would save $40bn over three years with the aim of cutting the deficit to less than three per cent of output by 2014.

Greece's next debt repayment is due on May 19.

Before the deal was agreed, George Papandreou, Greece's prime minister, said the choice was "between collapse or salvation".

"I have done and will do everything not to let the country go bankrupt," he said.

"We have convinced our partners that Greece's problem is not only ours. It concerns the functioning of the markets and the stability of the euro."

Papandreou admitted public anger at the new wave of cuts was "evident".

A bomb exploded at a branch of HSBC bank in Athens as the EU and IMF agreed the rescue package. The blast caused no injuries, police said.

'Hope erased'

Al Jazeera's Barnaby Phillips, reporting from Athens, the Greek capital, said the spending cuts were "bad news" for ordinary Greeks.

"The holiday payments that Greek civil servants get in Easter, summer and Christmas ... are going to be drastically reduced. Effectively it could mean that many people in the civil service get about a 10 per cent pay cut," he said.

in depth
  Q&A: Greek economic crisis
  Blog: The humiliation of Greece
  Inside Story: A financial bailout for Greece?
  Counting the Cost: Greece is the word
  Videos:
  Greece hit by anti-austerity rally
  Wake-up call for Greek economy
  Fears grow over debt crisis

The spending cuts have already outraged many Greeks, with thousands of people taking to the streets to protest.

Our correspondent said that to justify the cuts, the government was describing the rescue deal as necessary and not as bad as it could have been.

"George Papaconstantinou implied that the IMF had also pushed for compulsory pay cuts across the bigger private sector as well, and that the Greek government had successfully resisted this," he said.

The country's main public sector union ADEDY has vowed to fight the measures, saying they would hit an already weak economy hard.

"We will continue and we will intensify our protests,"  Ilias Ilipopoulos, the general secretary of ADEDY, which represents about 500,000 workers, said.

"The government today announced the destruction of workers, pensioners and even the unemployed. It erased all hope for job opportunities and deleted the future of young people."

A nationwide general strike is expected on Wednesday.

Source:
Al Jazeera and agencies
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