By George Georgiopoulos and Lefteris Papadimas
ATHENS, May 23 (Reuters) - Greece on Monday decided to take six billion euros worth of new, emergency fiscal measures to shrink its budget hole and jump start privatizations to convince lenders it can pay down debt without a restructuring.
Policy makers in Brussels and the European Central Bank are piling pressure on Athens 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 that lasted more than seven hours, Prime Minister George Papandreou and his cabinet went over 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 cabinet today reaffirmed its determination to continue with the fiscal consolidation program by taking additional measures of 2.8 percent of GDP to achieve the 7.5 percent deficit target for 2011,' Finance Minister George Papaconstantinou said.
Details of the mid-term fiscal plan will be spelled out after EU, IMF and ECB inspectors conclude a performance review. Papandreou will hold meetings with leaders of the political opposition on Tuesday, seeking to build consensus on the effort.
First in line in the government's 50 billion euro ambitious privatizations program to pay down its debt mountain will be divestments in Hellenic Postbank, OTE Telecom and the country's two biggest ports.
Athens expects to raise 3.5 to 5.5 billion euros from privatizations this year, including its entire 75 percent stakes in Piraeus and Thessaloniki ports and the Thessaloniki water company.
'To accelerate the process, the creation of a sovereign wealth fund composed of privatisation and real estate assets was also decided,' Papaconstantinou said.
The plan calls for a second phase of privatizations next year, including a 34 percent stake in gaming firm OPAP , up to 17 percent of Public Power Corp and 25 percent in ATEbank. The government is projecting proceeds of 4.0 to 6.0 billion euros in 2012.
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.
At stake is a 12 billion euro aid tranche under the EU-IMF bailout agreed to last year, as well as additional loans needed to plug a funding gap next year as the overborrowed country is 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 expect 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 revenue 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. For details, see
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 earlier cabinet examined 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 rate of 18 or 19 percent for all goods and services versus a current regime that ranges from 13 to 23 percent.
For FACTBOX on privatizations please click on
($1=0.7109 Euro)
(Editing by Padraic Cassidy) Keywords: GREECE DEBT/ (george.georgiopoulos@thomsonreuters.com; +30210 3311813; Reuters Messaging:george.georgiopoulos.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
ATHENS, May 23 (Reuters) - Greece on Monday decided to take six billion euros worth of new, emergency fiscal measures to shrink its budget hole and jump start privatizations to convince lenders it can pay down debt without a restructuring.
Policy makers in Brussels and the European Central Bank are piling pressure on Athens 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 that lasted more than seven hours, Prime Minister George Papandreou and his cabinet went over 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 cabinet today reaffirmed its determination to continue with the fiscal consolidation program by taking additional measures of 2.8 percent of GDP to achieve the 7.5 percent deficit target for 2011,' Finance Minister George Papaconstantinou said.
Details of the mid-term fiscal plan will be spelled out after EU, IMF and ECB inspectors conclude a performance review. Papandreou will hold meetings with leaders of the political opposition on Tuesday, seeking to build consensus on the effort.
First in line in the government's 50 billion euro ambitious privatizations program to pay down its debt mountain will be divestments in Hellenic Postbank, OTE Telecom and the country's two biggest ports.
Athens expects to raise 3.5 to 5.5 billion euros from privatizations this year, including its entire 75 percent stakes in Piraeus and Thessaloniki ports and the Thessaloniki water company.
'To accelerate the process, the creation of a sovereign wealth fund composed of privatisation and real estate assets was also decided,' Papaconstantinou said.
The plan calls for a second phase of privatizations next year, including a 34 percent stake in gaming firm OPAP , up to 17 percent of Public Power Corp and 25 percent in ATEbank. The government is projecting proceeds of 4.0 to 6.0 billion euros in 2012.
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.
At stake is a 12 billion euro aid tranche under the EU-IMF bailout agreed to last year, as well as additional loans needed to plug a funding gap next year as the overborrowed country is 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 expect 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 revenue 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. For details, see
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 earlier cabinet examined 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 rate of 18 or 19 percent for all goods and services versus a current regime that ranges from 13 to 23 percent.
For FACTBOX on privatizations please click on
($1=0.7109 Euro)
(Editing by Padraic Cassidy) Keywords: GREECE DEBT/ (george.georgiopoulos@thomsonreuters.com; +30210 3311813; Reuters Messaging:george.georgiopoulos.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.