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Greece Braced For More Austerity

by Ulrika Lomas,, Brussels

07 June 2011

Individuals and businesses in Greece are facing the prospect of paying yet higher taxes as the government prepares a fresh round of austerity measures as part of a recast bail-out deal with the International Monetary Fund (IMF) and the European Union (EU).

Ministers belonging to Greece's ruling socialist PASOK party began meeting this week to discuss proposals for a further wave of austerity measures as the nation struggles to meet the conditions of the EUR110bn bail-out deal brokered with the EU and IMF last year.

According to the IMF, the Greek government has committed to an "ambitious" medium-term fiscal strategy that will enable it to maintain both its targets for 2011 and out to 2015. As a result, it is thought that the government will have to raise about EUR6.5bn this year through spending cuts or tax rises, or a combination of both.

The Greek government forced through a series of unpopular fiscal measures last year as part of the bail-out package, including a 4% increase in value-added tax, an extension of the windfall tax imposed on companies with earnings of more than EUR100,000 per year, a rise in property tax, and an increase in the tax levied on alcohol and tobacco, among other revenue-raisers. Public sector wages were also slashed, leading to a series of public demonstrations in the nation's capital, Athens.

The austerity measures seem to have had the desired effect, with the government's budget deficit having fallen faster than expected. But its huge level of debt remains a problem, and with the government now likely to be shut out of the international bond markets beyond 2012, further funds from the EU and the IMF may be needed.

"Overall, significant progress, in particular in the area of fiscal consolidation, has been achieved during the first year of the adjustment program," the IMF stated. "However, reinvigoration of fiscal and broader structural reforms is necessary to further reduce the deficit and achieve the critical mass of reforms needed to improve the business climate and pave the way for sustainable economic recovery."

It is expected that the new austerity proposals will be agreed by the cabinet and sent to parliament by Wednesday June 8.

TAGS: tax | economics | business | fiscal policy | budget | International Monetary Fund (IMF) | Greece | European Union (EU) | Europe

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