Greece, Luxembourg express optimism about economic strategy

19/01/2010

Greece struggles to control a double-digit budget deficit, ballooning public debt and European concern that it will fall short of solving the problem. The "weak link" in the eurozone currently owes more than 110% of its GDP.

By HK Tzanis for Southeast European Times in Athens -- 19/01/10

Greece will not leave the eurozone, Prime Minister George Papandreou says. [File]

Greece has been in the EU spotlight for more than a month over the country's severe budget crisis, with intense scrutiny from Europe's top institutional bodies -- the European Commission (EC), the European Central Bank and the Ecofin Council. Late Monday (January 18th), however, Luxembourg's finance minister said there is optimism that Greece would repair its damaged economy in a reasonable amount of time.

Jean-Claude Juncker, who is also Luxembourg's prime minister, said the Greek public would have to endure deep cuts in social programmes and other indicators of quality-of-life, if the problem is to be solved.

"I'm convinced that the Greek government will be able to restore balance in their public finances in reasonable time," said Juncker after Monday's meeting in Brussels of the finance ministers of the 16 eurozone nations.

Greece's credit rating has been downgraded by international financial firms and has suffered a widening spread in bond market lending rates -- all on the heels of an officially announced 12.7% budget deficit for 2009.

Lumped together, the economic news has led observers to view Greece as the "weak link" in the eurozone. The crisis has increased pressure on Prime Minister George Papandreou's new government -- which took office in early October -- to take specific and permanent measures to raise taxes, along with core cuts in spending.

A key challenge will be collecting income tax from those previously shielded from that: various artisans, crafts people and self-employed professionals.

On Thursday (January 14th), Finance Minister Giorgos Papaconstantinou -- the government's "point man" in dealing with the crisis -- detailed measures Athens will take to whittle the deficit below the Maastricht Treaty-mandated 3% mark, within three years.

The measures are part of an updated Stability and Growth Programme that the government officially presented to the European Commission (EC) on Friday.

Higher taxes, levies on major property holders, a spiking of tobacco and alcohol taxes and pledges to fight tax evasion were cited as main revenue-generating tools.

Also envisioned are savings targeted from a 10% cut in benefits allocated by the government, a hiring freeze and reduced public sector contract employment and reductions in ministries' operating costs and defence spending. In addition, lower subsidy payments to pension funds and tighter controls on public hospital procurements are on the table.

On Sunday, Papaconstantinou told the Athens-based daily To Vima that the government will not hesitate if more steps are needed.

"If there are omissions, we will take additional measures," he said. "Markets are cautious and the climate is not positive," Papaconstantinou said, noting that while many countries are experiencing similar problems, none has such a serious crisis in confidence.

EU Commissioner Olli Rehn, who is expected to deal with the "Olympus-sized" Greek deficit crisis in his new post as the Union's economy and monetary affairs commissioner, has warned of a "very critical situation", in comments before a European Parliament confirmation hearing in Brussels last week.