Greece, EU/IMF in talks over new austerity: sources

By Renee Maltezou and Dina Kyriakidou

ATHENS (BestGrowthStock) – Greece is discussing a salary squeeze and other new austerity measures with European officials and the International Monetary Fund as conditions for a three-year aid package, sources familiar with the talks said on Thursday.

The euro zone member state has already cut public sector wages, hiked taxes, frozen pensions and taken other steps to cut its swollen budget deficit by around a third this year, despite widespread opposition from Greeks.

The EU has said no more belt-tightening is needed this year, but economists say the European Commission, the European Central Bank and the IMF, conducting talks in Athens, will require deeper reforms over the deal’s lifespan.

The measures being discussed include hiking Value Added Tax by 2-4 percentage points from 21 percent currently, a cut in salary bonuses and state sector wage supplements, as well as a hike of at least 10 percent on fuel, tobacco and alcohol taxes.

“All these are on the table,” said one of the sources, who requested anonymity. “They are not final yet.”

Greek officials are expected to announce the details of the deal by Monday, the sources said.

In Brussels, Economic and Monetary Affairs Commissioner Olli Rehn said the EU should complete talks with Greece “within days” on a financial aid package, conditional on Greece cutting its deficit. He gave no details of the package.

Investors are closely watching the discussions for details on whether the aid will start in time for Greece to refinance an 8.5 billion euro bond coming due on May 19 (next month) and if the deal will be big enough to handle Athens’ 300 billion euro debt pile.

On Wednesday, Germany’s Green party parliamentary leader cited IMF chief Dominique Strauss-Kahn as saying the aid package would be worth 100-120 billion euros ($133-160 billion) over three years, with 45 billion euros expected in the first year.

But the deal is expected to come with demands of more cost-cutting, above pledges to reduce the fiscal deficit from last year’s level of 13.6 percent of gross domestic product.

The sources said the talks were looking at cutting or cancelling so-called 13th and 14th salaries — Christmas and Easter bonuses each equal to a month’s pay for all public and private workers. The public sector would save about 1.4 billion euros a year from such a cut.

They are also targeting cuts to Greece’s system of public wage allowances, which often include generous extra pay for activities such as using computers or getting to work on time.

These are primarily meant to keep base salaries and pensions low, and a 5-15 percent cut could save the state about 300 million euros a year.

More austerity measures are bound to meet resistance. Opinion polls show a majority of Greeks oppose outside aid and expect the rescue package to hit living standards. Unions have pledged strikes and many analysts fear violent protests come autumn.

The sources would not give a timetable on specific measures, but one source said some could take place this year, while others would be stretched out over the course of the three-year program.

(Writing by Michael Winfrey; editing by John Stonestreet)

Greece, EU/IMF in talks over new austerity: sources