Greek Prime Minister George Papandreou discussed new emergency measures with his cabinet on Monday, vowing to step up privatizations to pay down debt and convince lenders a restructuring can be avoided.
Athens is feeling mounting pressure from policy makers in Brussels and the European Central Bank to redouble its efforts to cut deficits and push reforms to fix the economy's woes after falling behind targets set in its 110 billion euro bailout plan.
During a marathon meeting, the cabinet considered a raft of new austerity measures, including deeper cuts in public sector wages, more consumer tax increases, and even the taboo issue of dismissing full-time civil servants.
"The details of the mid-term plan will be specified next week," one government official told Reuters on condition of anonymity after a seven-hour cabinet meeting. "We expect to submit the mid-term plan to parliament in early June."
First in line in the government's 50 billion euro privatizations program to pay down debt will be divestments in Hellenic Postbank and the country's two biggest ports, a government official who took part in the meeting said.
"Privatizations are a top priority," the official, who did not want to be named, told Reuters, adding that apart from the ports of Piraeus and Thessaloniki a second phase of privatizations will include Public Power Corp., OTE Telecom, utility Athens Water, gas company DEPA and gaming group OPAP.
Earlier on Monday, Papandreou told ministers there should be no stepping back from the painful steps that must be taken to secure continued emergency funding and more aid to emerge from the debt crisis.
"We are taking the necessary decisions to avoid the danger and to change the country," government spokesman George Petalotis quoted Papandreou as telling the cabinet. "The battle goes on, and in this fight no cowardice is allowed."
At stake is a 12 billion euro aid tranche under the EU/IMF bailout agreed last year, as well as additional loans needed to plug a funding gap next year with the overborrowed country unlikely to return to bond markets in 2012.
On Monday the yield spread on 10-year Greek bonds over German bunds widened to 1,427 basis points, a new high. Two-year paper yielded 26.8 percent.
RESTRUCTURING DEBATE
With tough austerity medicine to quickly correct past profligacy knocking the wind out of Greece's economy, markets believe some form of debt restructuring is inevitable. But such a move would be anathema to policymakers, especially at the ECB.
Instead, Frankfurt and Brussels are urging strict compliance with the bailout plan, meaning state divestments, reforms and more measures to shore up budget revenues and lower the government's wage bill.
EU Economic and Monetary Affairs Commissioner Olli Rehn continued to press Athens to step up its fiscal efforts and press on with privatizations. "These are a matter of urgency," Rehn told a conference on European integration in Vienna.
Rehn also said maturities on Greek debt could be extended on a voluntary basis if this does not create a credit event -- an assessment by bond market representatives of the bondholders' treatment that would trigger insurance payouts on sovereign debt and downgrades by credit-rating agencies.
Belt-tightening to get Greece into a primary surplus is crucial to stem its ballooning debt but critics, including the conservative opposition, say the policy mix is wrong, hindering the economy from growing out of the debt mess.
Greek media reported the cabinet would examine steps such as halving a current 12,000-euro income tax exemption, cuts in exemptions on medical expenses and interest on home loans, moves certain to cut real pay for millions of workers and pensioners.
Other measures may include slapping a one-off levy on high incomes, possibly on those earning more than 80,000 euros ($112,500) annually, and a tax on large real estate holdings.
The government is also considering a uniform value added tax (VAT) rate of 18 or 19 percent for all goods and services versus a current regime that ranges from 13 to 23 percent.
If adopted, the move will mean higher costs for foods, electricity bills and transport but some relief for other consumer goods such as cars, furniture, appliances and apparel as retailers are hard-hit by the three-year recession.
The government is steadily losing public support in the face of harsh austerity. An opinion poll on Saturday showed 80 percent of Greeks would not accept more measures and the ruling Socialists tied with the opposition for the first time since their October 2009 election victory.
"An explosive situation is building. People feel that the going is getting very tough," Dimitris Mavros, managing director of pollster MRB, which conducted the survey, told Reuters.
REUTERS
