Greece braces for deeper spending cuts, as EU remains tightlipped on rescue plan

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Greece braces for deeper spending cuts

ATHENS, Greece — Greek officials say they will save €4.8 billion with measures including a hike in value-added tax from 19 to 21 percent.

Officials speaking on condition of anonymity say they will also cut back holiday bonus payments for civil servants by 30 percent.

Greece has been under intense pressure from the European Union to bring its massive debt under control. The measures are to be announced on Wednesday after a Cabinet meeting.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ATHENS, Greece (AP) — Greece will announce painful new spending cuts worth an expected €4.8 billion Wednesday to lift the country out of a major financial crisis, a day after Prime Minister George Papandreou said the country was in a “state of war” and was fighting for national survival.

The new austerity package — likely to cut more civil servant pay and bonuses, freeze pensions and hike consumer taxes, including the 19 percent sales tax — comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.

The amount of the new spending cuts has not been announced, but the measures will reportedly earn the government €4.8 billion in savings.

In a dramatic speech to his Socialist party deputies Tuesday night, Papandreou said all Greeks would have to accept painful sacrifices, and he warned of “catastrophic” consequences unless the country can borrow on international markets at lower lending rates.

Unions strongly condemned the cuts, even before the official announcement was made.

“It is a very difficult day for us … These cuts will take us to the brink,” said Panayiotis Vavouyios, the head of the retired civil servants’ association. “Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace.”

Pensioners associations staged a protest in central Athens and demonstrated outside Papandreou’s official residence, chanting “money for the rich, but none for us.”

The new measures are to be announced after Papandreou briefs the country’s president following the Cabinet meeting. They are likely to include cuts to civil servants salaries through trimming or abolishing holiday bonuses. Greece have their annual salaries split into 14 monthly installments, with the last two considered holiday bonuses for Easter, Christmas and summer vacation.

Unions have said that abolishing the 14th salary would be tantamount to a “declaration of war.” The country’s civil servants’ umbrella union has declared its third nationwide strike for March 16, while tax officials walk off the job for 48-hours on March 8. Taxi drivers were on the second day of a two-day strike Wednesday.

“People are under a very heavy burden and they do not have enough to get by. I wonder after these measures are implemented, what will be left? At some point, you have to say that this is enough,” said Ilias Iliopoulos, general secretary of the civil servants’ union.

“If the country asks us to give a salary, we will give it. But we cannot be the only ones who are made to pay … We have a strike planned because the reasons behind this crisis will still be there. The speculators will still be there,” he said.

Greece has already imposed pay cuts and a hiring freeze in the civil service as part of an existing austerity plan.

“We would have liked to have had more time for the results of our big structural reforms to become apparent,” Papandreou said during his Tuesday night speech. “But … our creditors, on whom we unfortunately depend, won’t give it to us.”

Greece says it wants EU help to borrow money at lower rates, but European officials have remained tightlipped over any potential bailout plan, insisting Athens must first improve its finances.

Papandreou is scheduled to meet German Chancellor Angela Merkel in Berlin on Friday, French President Nicolas Sarkozy in Paris on Sunday and U.S. President Barack Obama in Washington on March 9, in talks also expected to focus on the financial crisis, which has shaken confidence in the euro.

The Greek national debt has reached €300 billion ($405 billion), while Athens has promised to reduce its budget deficit from 12.7 percent of gross domestic product in 2009 to 8.7 percent this year.

The European Central Bank and International Monetary Fund are helping the EU assess Greek finances after Athens revealed a major budget shortfall last year and was accused of misreporting figures.

Associated Press Writers Elena Becatoros and Nicholas Paphitis contributed to this report.