Greek PM Seeks Cross-Party Bailout Pledge

by Ulrika Lomas, Tax-News.com, Brussels

23 November 2011

Greek Prime Minister Lucas Papademos has called for all party leaders of the country’s interim national unity government to provide written assurances to the European Union (EU) of their commitment to the painful, rigorous terms of Greece’s new EUR130bn international bailout deal.

Following a recent meeting with European Commission President Jose Manuel Barroso in Brussels, Prime Minister Papademos noted that the parties involved in the transitional government had already pledged their support for the austerity course in the short-term, during the crucial vote of confidence in the Greek parliament, and stressed that it is now necessary for coalition party leaders to provide written assurances of their long-term commitment to the reform programme.

The Prime Minister’s remarks are a stern warning to leader of the conservative New Democracy party Antonis Samaras, who has so far refused to pledge his commitment in writing to the vital fiscal reform measures needed to rescue the country from the threat of bankruptcy.

After the meeting, Commission President Barroso explained that there are “two essential objectives for the coming months”, notably a second programme of financial assistance to Greece for the next three years, which must be concluded by the end of this year, and the voluntary bond exchange with private sector investors, which should take place as planned at the beginning of 2012.

Barroso stated that: “The immediate task is to take the necessary steps for the sixth disbursement to be released as soon as possible. It is also crucial that the new government sends a clear signal that it will not waver from setting its debt on a steady downward path. The statements made by the Prime Minister on this in the last few days have been extremely important. Fiscal consolidation should go hand in hand with the structural reforms needed to transform Greece's growth potential and generate new jobs.”

He noted that the special task force is working well with the Greek authorities, and has already outlined a “comprehensive roadmap of technical assistance that is needed in priority areas such as tax administration and administrative reform”.

With Greece’s debt currently standing at EUR350bn and latest statistics revealing that, despite the government’s drastic austerity measures, the public deficit is widening, the government can ill afford to reject international aid. Unpopular emergency taxes announced in September failed to increase net fiscal revenues for the government, which actually fell by 4.1% between January and October.

The measures unveiled at the end of September, which followed a catalogue of other increases in taxation over the last year, included plans to reduce the tax-free allowance on annual income tax from EUR8,000 currently to EUR5,000, applicable to 2011 income, and to extend the government’s proposed new property tax, initially set to expire next year, to 2014.

Together with plans to accelerate reforms and privatizations, the government also proposed increasing the tax levied on domestic fuel and introducing further cuts in public sector pensions. As part of a labour reserve programme, up to 30,000 civil servants would also face job losses this year.

The government also plans to clamp down on rampant tax evasion.

The European Union task force’s first quarterly report on debt-ridden Greece recently underscored the importance of addressing the sensitive and urgent issue of tax collection and evasion, noting that an estimated EUR60bn in uncollected taxes are still outstanding.

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