Brussels yesterday gave its backing to the desperate measures offered up by Greek Prime Minister George Papandreou aimed at tackling its spiralling debt. Papandreou announced on Tuesday swingeing spending cuts to bring the country back from the “edge of an abyss” and yesterday the Commission piled on the pressure, saying Greece had just one month to spell out its budget programme for the year.
Greece was also ordered to undergo the most intrusive fiscal scrutiny ever experienced by a European Union member state. Greece’s economic and budgetary policies have been put under a strict surveillance regime, after concerns the country has misled the eurozone over its official figures.
Amid growing fears Greece could default on its bonds, the Commission ruled out calling in the International Monetary Fund in favour of approving plans to slash Greece’s public sector wage bill, speed up pensions reform and set aside 10 per cent of expenditure in reserves.
Greece will extend the freeze on public sector wages, and only replace one in five retiring civil servants. It will also increase the retirement age, make a series of healthcare reforms and raise fuel, tobacco and alcohol duties. “We consider that the programme is ambitious,” outgoing commissioner for monetary and economic affairs Joaquín Almunia said. “We are endorsing the Greek programme. But we know that the implementation of the programme is not easy. It is difficult. This deserves support.”
The Commission warned it would take extra action if necessary.
Societe Generale currency analyst Peter Frank said: “The plan sounds quite draconian, with fiscal constraints, wage freezes, tax hikes and the rest of it. It’s easy for them to cobble that together and get it approved in theory, but it’s more difficult to put it in practical terms.”
Public sector workers are planning a strike next week.
Greece’s ballooning deficit crisis has rocked the eurozone, with concern spreading to other heavily-indebted countries such as Portugal and Spain. Questions have been raised over whether other states should come to Greece’s rescue, and there has been speculation that Greece could be forced out of the single currency. The country is struggling with its worst economic crisis since joining the euro in 2001. Its budget deficit is more than 12 per cent of GDP – nearly quadruple the limit for eurozone countries.