Greece works on deficit as strikes loom

ATHENS - Greece unveiled sweeping proposals yesterday to increase retirement ages, hike taxes on the church and force street vendors to issue receipts, in a bid to appease EU partners and markets alarmed by the country's debt crisis.

On the eve of a nationwide strike against civil service wage freezes, officials pledged to accelerate reforms meant to prick a ballooning deficit and cut debilitating borrowing costs. Prime Minister George Papandreou said that the reforms "must go ahead now ... with greater speed".

"Our primary duty now is to save the economy and reduce the debt, aiming to do so through the fairest possible solutions that will protect - as far as that is possible - the weaker and middle classes."

Under intense pressure from the EU and market speculation, Papandreou's centre left Government has committed to a four-year austerity plan.

The budget deficit stood at 12.7 per cent of annual economic output last year, more than four times the limit allowed by the EU, while the public debt has exceeded 113 per cent of GDP. Combined with the country's ever-increasing borrowing costs, this has raised fears of a protracted crisis with contagion to other troubled EU economies such as Portugal and Spain, and pushed down the euro exchange rate. Some experts have said Greece could need a bailout - but EU and Greek leaders resist the idea, and Athens insists it can weather the storm.

The Government has announced €2 billion in public spending cuts so far, and hopes to raise more than €5 billion from extra taxes and fighting endemic tax evasion. However, Papandreou's Socialists, elected four months ago, have shied at further salary cuts or layoffs in the civil service, which employs some 750,000 people - all guaranteed lifetime jobs.

The reforms announced so far have angered powerful labour unions, and civil servants have called a nationwide strike for today. The walkout will affect state schools, hospitals, tax offices and local government offices, while all airports will be closed. Private sector workers will strike on February 24.

Finance Minister George Papaconstantinou said the new tax bill would increase the burden on the rich while easing taxation for those on low incomes. The top income bracket which will be taxed by the maximum 40 per cent will be expanded to include incomes of over €60,000 ($119,000) a year, from the current €75,000 threshold.

He confirmed plans to freeze public sector hirings and wages, while cutting bonuses.

"We all know that the civil service salary system is one full of injustices, that lacks any central logic and has evolved with successive bonus payments," Papaconstantinou said.

"We are committed to have a unified payment system."

- AP