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Greece Plans Referendum On Austerity Measures

by Ulrika Lomas,, Brussels

01 November 2011

In a shock move, stirring up greater uncertainty and volatility in the markets, Greek Prime Minister George Papandreou announced plans to hold a referendum on the new bailout package for Greece, arguing that he required wider political support for the government’s proposed – and highly unpopular – fiscal and economic reform measures.

At the eleventh hour and in a determined bid to avoid contagion, eurozone leaders united on plans at the end of last month to grant Greece fresh financial assistance of around EUR130bn (USD178bn) and 50% debt relief in exchange for an agreed programme of austerity measures and swift structural reforms.

Threatening to hurl the eurozone violently into a new crisis, Papandreou explained that the decision on whether or not to accept the deal, and with it the country’s fate, resided with the Greek people. The Prime Minister underscored his trust in their judgement.

While acknowledging that voters in Greece could indeed vote to reject the deal, Greek Finance Minister Evangelos Venizelos nevertheless underlined the need to bear in mind the consequences of such a decision. The minister revealed plans to hold the referendum at the beginning of next year.

At the end of September, the Greek government unveiled details of a fresh wave of austerity measures, including key fiscal initiatives, aimed at appeasing international creditors as the country battled to secure release of a further tranche of aid to avoid imminent default and to endeavour to secure its future within the eurozone.

The measures 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 now also intends to increase the tax levied on domestic fuel and to introduce further cuts in public sector pensions.

Under the proposed plans, pensions in excess of EUR1,200 a month will be reduced by 20%, while pensions for civil servants retiring before 55 will also be cut. As part of a labour reserve programme, up to 30,000 civil servants will also face job losses this year.

Commenting on the proposed measures at the time, Venizelos underlined the need for further initiatives, stressing that the government would take any action necessary.

TAGS: tax | pensions | property tax | fiscal policy | public sector | Greece | individual income tax

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