Greece gets three years to solve budget woes

While Greek Prime Minister George Papandreou went on national television to dramatize his country’s failing economic state because of out-of-control debt – a dilemma he said requires 10% cuts in public workers wages and higher taxes – the European Union said it would give Greece until the end of 2012 to regain control of its finances.

The drama mounted both in Athens, where public workers said they would take to the streets in protest, and in Brussels, where the European Commission said it would not take immediate punitive action although Greece’s near 13% deficit is more than four times the EU’s ceiling of 3% for countries using the euro as their currency. But the EU said it would monitor Papandreou’s near-Draconian austerity program and step in if Greece failed to meet regular benchmarks because the crisis has threatened the stability of the euro.

Under pressure from the EU to get its fiscal house in order, Papandreou said a public sector pay freeze and fuel duty increases were essential, because the economic crisis was threatening the country with disaster. “I want to be honest. We are making a national effort to stop the country from falling off the cliff,” Papandreou said in his TV address, which drew instant anger from many Greeks who blame the government, including past administrations, for lying to the EU about its financial condition, which has necessitated the wage cuts and tax hikes that would cut deep in a country where the minimum wage is only 700 euros monthly and where many Greeks are under a tsunami of debt to banks who got 28 billion euros in state aid but have refused to lend to consumers. Papandreou made a plea for understanding and cooperation. “Every citizen should be prepared to fight to protect the economy,” he said, but when the question of wage cuts was raised previously, members of the Greek Parliament, who make more than 7,000 euros a month, said they didn’t want to take pay reductions while workers would.

The move came as the European Commission set out the most detailed monitoring system it has ever imposed on a Eurozone country, effectively taking control of sweeping aspects of the Greek budget. “This is a very tough system of monitoring, but the confidence about the success of the program ... is directly linked with the political support that the Greek authorities will receive” from Greek society and the EU, Economic and Monetary Affairs Commissioner Joaquin Almunia told journalists in Brussels.

The Commission “will monitor the execution of the budget and of the reforms very closely and regularly,” he said. The Commission threw its full weight behind a detailed Greek plan aimed at bringing the government’s debt back under control and restoring its vanished credibility by slashing spending and increasing tax revenues. That effectively binds the Greek government to measures such as freezing public-sector wages, stopping new hiring in 2010 and boosting excise on tobacco and alcohol sales, since the EU’s executive will step in if they are not implemented. “Every time we observe slippages, we will ask the Greek authorities to adopt additional measures,” Almunia warned.
The euro, the EU’s flagship currency, has taken a battering in recent months following the revelation that the last Greek government - voted out of office in October - had massively understated its budget deficit when it said it was 3.5%. Immediately after the election, the new socialist government revealed that the real figure for 2009 was 12.7%, provoking outrage across the EU, with some states accusing the Greeks of fraud.

Money markets also responded with dismay. Over the last two months, the euro has lost some 8% of its value against the dollar - largely thanks to concerns over Greece and fears that other euro states, such as Portugal, could also face budget problems. Greece and Portugal “share some common problems,” such as falling competitiveness and high external financing debts, Almunia admitted.

Almunia welcomed that move, rejecting suggestions that Greece might have to be bailed out by the International Monetary Fund and saying that the EU was strong enough to tackle the problem alone. “I am fully convinced that the EU and the euro-area countries and system have instruments enough to cope with this challenge, to deal with this issue, to solve these problems, and it’s what we are doing,” he said.

Almunia also said that the next Commission - expected to take office later this month - would propose laws to give its statistical branch, Eurostat, the power to audit national accounts. EU member states rejected an earlier proposal to that effect in 2005. “If Eurostat had received audit powers during the previous years, it is possible that the present statistical problems would not have occurred,” Almunia said.

New Europe