Greek-style Austerity Measures

Greek PM Offers Some Tax Relief, But No Handouts

September 11, 2010

Reuters - Prime Minister George Papandreou offered no handouts to austerity-weary Greeks but gave some relief to companies struggling with recession in a main speech on the economy on Saturday.

Bound by the conditions of a 110-billion-euro ($140 billion) EU/IMF bailout deal to rescue Greece from bankruptcy, his Socialist government has imposed tax rises and draconian salary and pension cuts to fight deficits, prompting strikes and protests.

"We are fighting for the survival of Greece," Papandreou said in his annual economic policy speech at a trade fair in the northern city of Thessaloniki. "Either we'll win together, or we'll sink together."

About 20,000 people marched through the city to protest against belt-tightening measures. A few hundred youths tried to break through police lines cordoning off the venue and were pushed back with tear gas in clashes that lasted a few minutes.

Papandreou said his government will continue pushing reforms and opening up sectors of the economy such as electricity and freight transport and also overhaul loss-making state firms including Hellenic Railways (OSE).

"I ask all the country's productive forces to join us, to support this great change," he said.

Bowing to calls from the business world buckling under a deepening recession, he said he would speed up relief for corporations by bringing forward planned cuts in retained earnings tax to 20 from 24 percent in 2011 instead of 2014.

But he avoided concrete pledges to a restive public that has taken to the streets in sometimes violent protests this year, reluctant to displease international lenders or risk the next installment of the loan due in the last quarter.

"We are still at the start of our effort. I don't want to make big promises but I understand the difficulties poor pensioners face," he said. "I will ask the finance minister to do his best depending on how revenues go."

Despite the harsh measures, opinion polls show his Socialist party ahead of the conservative opposition. A poll by Kappa Research for To Vima on Sunday, showed the Socialists would win 29.1 percent of the vote versus 21.3 percent for the conservatives if elections were held now.

Last October, Papandreou capitalized on a wave of anger at scandals to trounce his conservative rival, Costas Karamanlis, who broke the tradition of making generous promises at the Thessaloniki fair and told Greeks he would freeze public sector salaries, eventually losing the election.

But huge deficits inherited from the conservatives plunged Greece into a debt crisis that shook the euro zone and international lenders stepped in to rescue the country in exchange for tough fiscal measures.

Consumption has been hit as public sector wages were cut by 15 percent, pensions by 10 percent and value added tax increased by 4 percentage points to 23 percent. The economy is set to contract by 4 percent this year and unemployment hit 11.6 percent in July from 8.6 the year before.

Declining consumption is hurting state revenues and threatening targets to cut the deficit to 8.1 of GDP this year from 13.6 percent in 2009.

"The market is pretty worried about whether the government will find the golden medium to kick start the economy and secure the revenues that are missing," an Athens-based analyst said. "Only if they manage to find this golden medium, will the country be able to get out of this tunnel."