Greece braces for deeper spending cuts

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By Associated Press

Summary

Greece will announce more major spending cuts Wednesday, after the country's prime minister warned of "catastrophic" consequences unless markets are persuaded to lower lending rates.

Story Published: Mar 2, 2010 at 10:47 PM PST

Greece braces for deeper spending cuts

Taxi drivers demonstrate outside the Greek Finance Ministry, during their 48-hours strike,in Athens, Tuesday, March 2, 2010.

ATHENS, Greece (AP) - Greece will announce more major spending cuts Wednesday, after the country's prime minister warned of "catastrophic" consequences unless markets are persuaded to lower lending rates.

The new austerity package - likely to cut more civil servant pay, freeze pensions and hike consumer taxes - comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece keeps losing money.

"We are today in a state of war in front of negative scenarios for our country," Prime Minister George Papandreou said.

Wednesday's measures are due to be announced after a Cabinet meeting scheduled to start at 0700 GMT.

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. "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 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.

Last week, Greece's labor minister said the EU was looking for additional spending cuts worth euro1.4 billion ($1.9 billion) - but that estimate was made before EU Finance Commissioner Olli Rehn visited Athens on Monday and tersely told Greek officials to make more cuts.

The Greek national debt has reached euro300 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.