Greek PM: austerity cuts are just the beginning

AP News
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Posted: Apr 15, 2011 6:24 AM
Greek PM: austerity cuts are just the beginning

Greece's painful austerity measures are just the start of a long list of structural reforms to get the debt-ridden country's economy back on its feet, the prime minister said Friday.

While presenting a new package of reforms worth euro23 billion ($33 billion) through 2015, George Papandreou said the measures were a "patriotic duty" that would bring about "radical change" in all sectors of the state.

The measures themselves will be unveiled after Easter, he said in opening remarks at a Cabinet meeting which were televised live.

Papandreou insisted that Greece does not intend to restructure its debt, a possibility markets are increasingly fearing. The country's woes, he said, "will be addressed in depth. Not by restructuring the debt but when we restructure the country."

Greece was saved from default last year with a euro110 billion package of bailout loans from the International Monetary Fund and EU. In return, it imposed strict austerity measures last year, including public sector salary and pension cuts, and broad tax hikes.

Earlier this week, the country's finance minister said measures would not include any more across-the-board salary and pension cuts or sweeping tax increases, but would focus on curbing wasteful spending at state enterprises, limiting public sector payroll costs and cracking down on tax evasion and the nonpayment of social security contributions.

"I am totally resolved to continue this effort and totally confident that it will succeed," Papandreou said, adding that "the start has been made and now we have a roadmap for the next stage."

The prime minister said the government aimed to reduce spending to 44 percent of gross domestic product by 2015 _ which he said was the EU average _ from the 53 percent it stood at in 2009. He expects state revenues, which stood at 38 percent of GDP in 2009, to increase to 43 percent in 2015.

The levels of revenue and spending would return to those of a few years ago, when Greece's debt crisis came to the fore.

"None of the targets we have set are unprecedented," he said. "What is unprecedented is the effort we are undertaking to clean up a chaotic situation and return to normality."

Despite repeated government assurances that Greece does not intend to restructure its debt, many analysts have argued it will eventually be forced to do so, even if it follows through on all its pledges.

IMF chief Dominique Strauss-Kahn said late Thursday that the country would manage _ provided it really does implement the reforms it has pledged.

"It is painful, and I understand how painful it is for the Greek people," he said. "But, I think Greece will make it. To do this, we build a program. Of course, this program has to be implemented."

He stressed that the government, "which was very bold in implementing a lot of measures during the last year, should not run out of steam."

On Thursday, the country's borrowing costs rose sharply, with the yield on 10-year government bonds spiking to over 13 percent for the first time since the country joined the euro in 2001. The interest rate gap, or spread, between Greece's 10-year bonds and those of Germany, which are considered the benchmark, rose to above 10 percentage points before dipping just below that level by noon Friday.

The spike was attributed to comments from German Finance Minister Wolfgang Schaeuble, who said in an interview with the Die Welt newspaper that Greece may have to take additional steps to deal with its finances as soon as June.

Asked if that meant a restructuring, Schaeuble said any restructuring would have to be agreed voluntarily. European leaders ruled out losses for bondholders under the current, temporary EU bailout fund, but will allow such losses, or haircuts, under bailouts from a new rescue fund that can be tapped from 2013.

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Derek Gatopoulos in Athens contributed.