Papandreou Pledges ‘Radical’ Measures to Cut Deficit
Greek Prime Minister George Papandreou pledged “radical” action to bring the country’s budget deficit within European Union limits by 2013 as the two- month old government struggles to convince investors it can get to grips with public finances.
“In the next three months we will take those decisions which weren’t taken for decades,” he said in a speech in Athens today, attended by union and employer-group representatives, and politicians. Papandreou, who came to power in October, said many choices will be “painful,” though he pledged to protect poorer and middle-income Greeks.
Papandreou is trying to shore up confidence in Greece after its bonds tumbled last week amid concern about its commitment to cutting the European Union’s largest budget deficit, set to reach almost 13 percent of economic output this year. Fitch Rating cut Greece one step to BBB+ and the yield on the Greek 10-year government bond has risen more than a percentage point to 5.465 percent since Oct. 8.
“It does not appear that he has provided much insight into how he will reduce Greece’s heavy debt burden,” Brown Brothers analysts led by New York-based Marc Chandler wrote in a research note. “The most important take-away point is that key decisions will be made over the next three months and the pain will be distributed.”
European Central Bank Vice President Lucas Papademos on Dec. 12 said Greece’s fiscal situation is “extremely serious.”
Papandreou, who said he will forge a “new national” agreement, today pledged to cut the deficit, to under 7 percent from 2011 and begin reducing the debt, set to exceed 100 percent of gross domestic product this year, from 2012 Payday advance. That will be achieved through taming the deficit and selling more state asset beginning next year.
The premier said revenue to reduce debt would come from exploiting the state’s real estate holdings, a real estate investment fund, as well as securitization of income from the state’s tax on major property holdings.
Under pressure from the EU to move quickly, Papandreou said he would step up talks on an overhaul of the tax system, one of his election pledges. The new system will be in place in the first quarter of 2010, he said.
The audience applauded when Papandreou announced executives of banks under state control wouldn’t get any bonuses and those paid at private banks would carry a 90 percent tax rate.
The government will set up a new economic police department to stamp out contraband, tax evasion and corruption, a key plank in the Socialists’s agenda to boost revenue.
“Today our biggest deficit is that of credibility,” Papandreou said. “In the last years Greece lost all traces of credibility, which is why international institutions, partners want to see actions.”