Bloomberg News

Greece’s Additional Budget Cuts Said to Be Backed by EU, IMF

June 23, 2011

(Adds comments from Greek official in sixth paragraph.)

June 23 (Bloomberg) -- Measures proposed by the Greek government to complete a 78 billion-euro ($111 billion) austerity package required to win a bailout were endorsed by officials from the European Union and the International Monetary Fund, said a person familiar with the matter.

Greek lawmakers must approve the measures in a vote next week, a condition for receiving a fifth loan payment under an existing EU-led bailout and for future financing. Failure to secure aid would push Greece to the brink of default, with the country needing the funds to cover 6.6 billion euros of maturing bonds in August.

Prime Minister George Papandreou will discuss the measures at a summit of European leaders in Brussels today and tomorrow, Greek Finance Minister Evangelos Venizelos said. There was general agreement on the main points of the austerity program with officials from the EU, the IMF and the European Central Bank in Athens, he said.

The new budget measures include a “solidarity levy” of between 1 percent and 5 percent that would apply to all Greek wage earners, with members of parliament paying the top rate, Venizelos said at a news conference in Athens today. Self- employed Greeks will have to pay a separate charge estimated at around 300 euros a year on average, he said.

Income Tax

Other changes include reducing the threshold for paying income tax to 8,000 euros from 12,000 euros, with people under the age of 30 exempt from the lower threshold. A small increase in heating-oil taxes will also be brought in, Venizelos said.

While discussions have ended, technical details remain to be resolved, a Greek official said.

The euro pared losses after Reuters reported that Greece had reached an agreement with the EU-IMF mission regarding the austerity plan. The euro was down 0.7 percent at $1.4254 at 3:57 p.m. in New York after weakening as much as 1.6 percent earlier.

“The precondition for the vote of the medium-term plan is for this to be finalized and this was the matter for today,” Venizelos said. “All these days we have been working to make decisions that are fair and acceptable to our partners.”

Venizelos said he encouraged Greek banks to roll over Greek bonds already held when they mature. That element will be a key part of how much future aid Greece is granted, he said, along with the country raising 50 billion euros in state asset sales.

The law on the medium-term package and accompanying bill must be voted on by June 30, Venizelos said, before EU partners make a decision to pay the fifth 12 billion-euro loan payment under last year’s bailout. He said he received a “very positive” response from socialist party lawmakers today after he briefed them. They are “fully aware of the situation.”

--With assistance from Marcus Bensasson, Paul Tugwell and Natalie Weeks Athens. Editors: Jones Hayden, Patrick G. Henry

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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