Greek Prime Minister George Papandreou discussed new emergency measures with his cabinet on Monday to cut the deficit, keen to convince lenders Athens can deal with a debt crisis without a restructuring.
A raft of new austerity measures being studied includes deeper cuts in public sector wages, more consumer tax increases, and even the taboo issue of dismissing full-time civil servants.
At stake is a 12-billion euro aid tranche under the EU/IMF bailout agreed last year, as well as additional loans needed to plug a funding gap next year as the overborrowed country is unlikely to return to bond markets in 2012.
With the tough austerity medicine to fast correct past profligacy knocking the wind out of Greece's economy, markets believe some form of debt restructuring is inevitable but this is anathema to policy makers, especially at the ECB.
Instead, Frankfurt and Brussels are urging strict compliance with the bailout plan, meaning state divestments, reforms and more measures to shore up budget revenues and lower the government's wage bill.
On Monday EU Economic and Monetary Affairs Commissioner Olli Rehn pressed Athens to redouble its fiscal efforts and press on with privatizations.
"These are a matter of urgency," Rehn said in a speech to a conference on European integration in Vienna.
Belt-tightening to get Greece to primary surpluses is crucial to stem its ballooning debt but critics, including the conservative political opposition, say the policy mix is wrong, hindering the economy from growing out of the debt mess. Worried about the fallout of a default, the chief executive of Europe's largest insurer, Allianz, on Monday warned governments not to push Athens toward insolvency by blocking further aid to Greece.
"We need an industrialization plan for Greece, a type of Marshall Plan. European labor and production need to be shifted to the country," CEO Michael Diekmann told German daily Bild.
CUTTING TAX EXEMPTIONS
Newspapers said on Monday measures the cabinet will examine include halving a current 12,000-euro income tax exemption, and cuts in other exemptions on medical expenses and interest on home loans, moves certain to squeeze take-home pay for millions of workers and pensioners.
Papandreou has vowed to speed up reforms and do everything it takes to avoid default, setting the stage for the announcement of a tough set of measures.
"We are in the middle of an ongoing battle. We will not surrender. We will do whatever it takes to make sure Greece stands on its own feet," he told a gathering in the southern town of Nafplio last week.
Other new fiscal steps may include slapping a one-off levy on high incomes, possibly on those earning more than 80,000 euros ($112,500) annually, and a tax on large real estate holdings.
The government is also considering a uniform value added tax (VAT) rate of 18 or 19 percent for all goods and services versus a current regime that ranges from 13 to 23 percent.
If adopted, the move will mean higher costs for foods, electricity bills and transport but some relief for other consumer goods such as cars, furniture, appliances and apparel as retailers are hard-hit by the three-year recession.
The government is steadily losing public support in the face of harsh austerity. An opinion poll on Saturday showed 80 percent of Greeks won't accept more measures and the ruling Socialists tied with the opposition for the first time since their October 2009 election victory.
"An explosive situation is building, people feel that the going is getting very tough," Dimitris Mavros, managing director of pollster MRB, which conducted the survey, told Reuters.
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