— Greece’s beleaguered government said Thursday it will start taxing minimum-wage earners and encourage local banks to help the state delay debt payments for bonds maturing as late as 2015.
The announcement came as the government reached a final deal on a euro28 billion austerity package with debt inspectors from the European Union and the International Monetary Fund. Getting the new spending cuts, economic reforms and privatizations through parliament next week is a precondition for Greece to get more aid, without which it will default on its massive debts.
The deal reached between the Greek government and the debt inspectors, which regularly check on Greece’s implementation of its euro110 billion bailout program, contains an additional euro3.8 billion in spending cuts, an EU official said early Friday.
The experts from the EU and the IMF found that the austerity package to be sent to parliament initially fell short off the promised euro28 billion in savings, but that the Greek government promised to offset the shortfall with additional cuts, the official said. The official was speaking on condition of anonymity because the cuts have not yet been announced.
Earlier, Evangelos Venizelos, the country’s new finance minister, said the government is encouraging a deferment scheme under the so-called “Vienna initiative,” signing up private investors such as banks and investment funds to voluntarily renew their debt holdings as they expire.
Similar discussions are currently going on throughout the eurozone, in an attempt to cut the overall amount of money other eurozone nations and the IMF have to lend Greece in a second bailout package that is in the process of being negotiated.
Voluntary bond rollovers were used successfully in 2009 to help East European countries during the global financial crisis. But Athens runs the risk that a similar move may be considered a default by ratings agencies, because it will likely involve banks charging interest rates that are significantly lower than what they would currently get on Greek bonds bought on the open market.
“The Vienna process is totally voluntary,” Venizelos said. “Are we encouraging the Greek banks to participate? The answer is yes.”
Asked what bond maturities would be considered in the voluntary process, he said: “They may include 2015.”
A Greek default could drag down Greek and European banks, endanger weak eurozone countries like Portugal, Ireland and Spain, and potentially spark turmoil in global markets, the European Central Bank has warned.
Greece’s creditors are demanding it pass the new round of austerity measures before getting the euro12 billion in loans from the eurozone, IMF rescue fund. Venizelos promised to have the package passed by June 30.
With more cuts still to be announced, Venizelos said the country’s tax threshold would be lowered from euro12,000 to euro8,000 — meaning most Greeks on a minimum wage of euro739 per month would have to start paying income tax.
The new measures promoted Greece’s largest union, the GSEE, to call a 48-hour strike next Tuesday and Wednesday.
On Thursday, more than 3,000 officers from the police, coast guard and fire service — most wearing their uniforms — protested in central Athens against the cuts in a rally to parliament.
“Police get the worst wages in the public sector. We can’t make ends meet,” 45-year-old police Sgt. Athanasios Kritsilas from the northern town of Drama, told the AP. “We don’t want anymore cuts, we’re already at rock bottom, we can’t get any lower.”
Greece’s Socialist government has so far faced down dissent in its own party, violent protests and a national wave of discontent. It survived a confidence vote Tuesday by insisting it must insure the country’s national debt remains viable.
With borrowing costs still prohibitive, Greece is likely to require a second bailout package next year to cover its financing needs. Many economists remain convinced the country will have to restructure its debts in some way in the coming years, especially if the economy shrinks further.
Venizelos’ talks with creditors in Athens came as European Union leaders met in Brussels for a summit expected to be dominated by the Greek crisis. They were expected to reinforce their message of fiscal austerity to Prime Minister George Papandreou.
Papandreou is to meet with German Chancellor Angela Merkel, French President Nicolas Sarkozy, EU President Herman Van Rompuy and European Central Bank President Jean-Claude Trichet.
See TIME’s Top 10 Everything of 2010.
See TIME’s most unforgettable images of 2010.
