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Greece backs new round of tax rises and spending cuts

Demonstration by striking workers in Athens, 10 Feb 10
Greece has been hit by a wave of public sector strikes

The Greek government has approved a new package of tax increases and spending cuts to save 4.8bn euros ($6.5bn; £4.4bn) and ease its budget crisis.

The measures include rises in sales taxes, a cut in holiday bonuses paid to civil servants, and a pensions freeze.

The EU had called for austerity measures amid fears that Greece's problems could undermine the eurozone.

The new package was welcomed by the EU and the International Monetary Fund, but condemned by Greek trade unions.

The new measures include:

  • Pensions freezes
  • Cuts in public sector pay
  • A increase in sales tax from 19% to 21%
  • Rises in taxes on fuel, cigarettes and alcohol
  • Rises in taxes on luxury goods

'Survival'

Greek Prime Minister George Papandreou has likened the budget crisis to a "wartime situation".

ANALYSIS
Malcolm Brabant
By Malcolm Brabant, BBC News, Athens
In a country with Byzantine financial practices, one of the more idiosyncratic traits of Greek employment law is the requirement that workers receive their annual remuneration in 14 segments.

The methods vary, but in principle, employees get a full month's extra wages at Christmas, an extra half month's salary to help during the summer holiday period, plus another half month's salary at Easter.

The bonuses carry great symbolic value in Greece, but the European Commission has urged the government to scrap them for civil servants.

Some of the cabinet have been reluctant to do so, not least because of strong opposition from trades unions. The unions fear that any reduction in the bonuses will not be just for the duration of the crisis but will be permanent.

The main civil service union has called a 24-hour strike on 16 March.

He told reporters: "These decisions are necessary for the survival of the country and the economy, so that Greece can exit the vortex of speculators and defamation, so that we can breathe and keep on fighting."

The socialist government has pledged to reduce Greece's budget deficit from 12.7% - more than four times the limit under eurozone rules - to 8.7% during 2010.

It is also seeking to reduce its 300bn euro ($419bn; £259bn) debt.

European Commission President Jose Manuel Barroso said the plan confirmed that the Greek government was committed to "taking all necessary measures" to cut its deficit.

The German government also welcomed the new austerity plan, saying it was likely to inspire confidence in Athens.

The International Monetary Fund (IMF) called it a "very strong package", AFP news agency reported.

The euro rose against the dollar after it was unveiled. All the major European markets closed up about 1%.

The yield on Greek bonds slipped slightly, reflecting greater confidence in the country's debt.

The US credit rating agency Moody's said the measures were "a clear manifestation" of Greece's resolve to regain control of its public finances, the Associated Press (AP) news agency reported.

'Shameful'

The BBC's Malcolm Brabant in Athens says the package may have pleased Europe and financial markets, but they have infuriated the Greek trades unions and left-wing politicians.

I will certainly lose money - I estimate it will be 7% of my salary
Eleni
Teacher in Athens

The head of the civil service union described the wage cuts and tax increases as unjust.

There have been strikes in protest against the government's cost-cutting plans.

The leader of the influential Communist Party described this latest round of financial pain as "shameful" and called for the working class to rise up against the EU and international markets.

On Wednesday Panayiotis Vavouyios, head of the retired civil servants' association, said: "It is a very difficult day for us. These cuts will take us to the brink.

"Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace."

Mr Papandreou is due to meet German Chancellor Angela Merkel in Berlin later on Friday.

Mr Papandreou said his government would go to the IMF "as a last resort" if EU assistance fell short, AP reported.

European debt and deficit figures



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