European Commission, eurozone leader say Greece budget cuts will help euro stability

EU backs extra Greek budget cuts

BRUSSELS — The European Commission and the top economy official in the 16 nations that use the euro backed Greece’s extra budget cuts on Wednesday, saying they would help the financial stability of Europe’s currency union.

EU Commission President Jose Manuel Barroso and the head of a group of eurozone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said separately that they were confident that Greece could now reduce its deficit by four percentage points this year.

“Greece’s ambitious program to correct its fiscal imbalances is now on track,” Barroso told reporters in Brussels.

The euro currency has slid in value against the U.S. dollar in recent months as market worries grew that Greece might not be able to pay back its massive borrowings because it has weak economic growth prospects and high public spending.

Juncker repeated that eurozone governments “stand ready to take determined and coordinated action, if needed, to safeguard the financial stability in the euro area as a whole.” But governments have not said how they would bail out Greece if they have to.

Reluctant to pay Greece’s bills, EU governments warned Athens last month to make tougher budget cuts. They said they would order Greece to do more unless it came up with new savings itself before March 16.

Greece came through Wednesday with a new austerity plan worth €4.8 billion ($6.5 billion), raising some €2.4 billion ($3.3 billion) in new revenues like taxes and another €2.4 billion in spending cuts.

It will trim civil servants’ bonuses and freeze pensions. It will also increase value added tax from 19 percent to 21 percent and hike taxes on alcohol, cigarettes, luxury cars, yachts, precious stones and leather goods.

The EU officials said the public sector wage cuts were essential to help reduce the budget and restore competitiveness.

The EU executive has previously criticized Greek civil servants’ salaries as unjustifiably high because increases have outpaced real economic growth. They also hurt the economy because they force private sector pay to go up, making Greece more expensive as a business location.