By Angelika Papamiltiadou

ATHENS (MNI) – The Greek government Thursday evening sent to
parliament a E28.26 billion four-year deficit cutting plan that it hopes
will pave the way for an estimated E70 billion in new bailout money from
its EU partners and the International Monetary Fund.

The government proposes to achieve E14.8 billion of the deficit
reduction through additional spending cuts and E13.4 billion from new
revenues. About E6 billion is to be garnered by raising direct and
indirect taxes, according to a report released Thursday by the Finance
Ministry.

The new austerity measures come at a time when Greece is mired in a
recession that is exceeding all expectations.

According to figures announced earlier in the day, Greek GDP
contracted by 5.5% in the first three months of the year, far surpassing
the already upward-revised projection of -4.8%.

According to the finance ministry, the government aims to raise
E1.8 billion in 2011-2012 from an emergency tax imposed on incomes of
over E6,000 euros per year and E900 million from abolishing tax
exemptions.

It plans to raise an additional E1 billion by 2015 through an
increase of 10 percentage points in the value-added tax rate on
restaurants, taverns, fast food and other food-related sectors, from 13%
to 23%. Another E1.2 billion is expected to come from imposing a new
type of property tax; and E300 million from increasing tobacco taxes.
The government also expects new revenues of E100 million from a tax on
financial transactions.

The government estimates that it can raise E3 billion euros from
combating tax evasion, a target that is considered optimistic, since the
results so far have been minimal.

About E2.17 billion is expected to be cut from further downsizing
the public sector, and from a further reduction in wages and pensions.
Another E1.3 billion of savings is being targeted by shutting down or
merging public utility companies.

Between 2011 and 2015, the defense budget will be cut by E1.2
billion and the health sector budget by E4.4 billion.

However, the ministry report leaves various gaps and falls short of
explaining in detail the whole package of measures. As far as the
privatization program is concerned, the government says it is committed
to raising E50 billion by 2015 in a speedy process that will be run by a
“development fund” to be formed specifically for this purpose. The state
assets targeted for sale include various public utility companies and
real estate.

According to the finance ministry’s estimations, if the
privatization program is carried out in full Greek debt will stand at
139.5% of GDP in 2015 rather than the 167% projected in the absence of
privatizations.

The fiscal package is expected to be discussed in parliament for
about three weeks before the final vote.

Greece’s EU partners insist that swift approval of the package is
essential before any new aid can be pledged in a new bailout package.
But the government of Prime Minister George Papandreou faces tough
political opposition and social resistance, with tens of thousands of
protesters surrounding Parliament on a daily basis and even members of
his own Socialist Party objecting to many provisions of the new plan.

Another major obstacle in the way of a new Greek bailout is sharp
disagreement, particularly between the European Central Bank and
Germany, over making private sector creditors share some of the burden
of a new bailout by extending the maturities on their Greek bond
holdings.

Germany’s Finance Minister Wolfgang Schaeuble on Tuesday sent a
letter to his fellow EMU finance ministers and the ECB in which he
called for an exchange of Greek bonds held by private sector investors,
in which maturities would be extended by seven years.

ECB President Jean-Claude Trichet on Thursday sent a warning shot
across the bow, saying any kind of private sector solution that was not
entirely voluntary, or contained “elements of coercion” would be
unacceptable.

The problem is that all three major rating agencies have made it
clear in recent days that given the stress on Greek bonds, they would
view even a “voluntary” exchange or rollover as a de facto default. The
way out of the impasse is not clear.

–Angelika Papamiltiadou; a_papamiltiadou@hotmail.com

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