EU Economy
Greece has to plug additional €5.5bn 'black hole'
By Finfacts Team
Jun 24, 2011 - 6:13 AM

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From left to right: Enda Kenny, Irish taoiseach, Jean-Claude Juncker, Luxembourg prime minister, and Dalia Grybauskaitė, Lithuanian president, Brussels, June 23, 2011.

Greece has to plug an additional €5.5bn 'black hole' as it has been discovered that the €28bn new austerity package agreed last month is no longer sufficient to meet targets set by the EU-ECB-IMF troika.

A team sent to Athens this week to review the four-year fiscal and reform measures which are the basis of a planned second bailout package, discovered a €5.5bn financing gap in the program. As a result, an additional €600m in cuts or tax increases will have to be found this year. 

Speaking to reporters on his arrival in Brussels for an EU summit on Thursday, George Papandreou, Greek prime minister, said Greece was intent on seeing through its austerity program but he stressed that Athens expected solidarity from the EU in return. “Greece is strongly committed to continue a very difficult but important program for major changes, radical changes to make our economy viable,” Papandreou said. But he added, “We expect that the European Union also will create the efficient framework to deal with this crisis and also to deal with the number of systemic problems we’ve been seeing over the past months in the Eurozone.”

Olli Rehn, European economic and monetary affairs commissioner said the EU was prepared to help Greece save its economy
“but the first thing is that Greece must help itself, so that the other Europeans can help Greece. That’s the bottom line.”

Antonis Samaras, the leader of the conservative New Democracy party, was also in Brussels yesterday for a meeting of the European People’s Party, a group of centre-right political parties including Ireland's Fine Gael. Samaras is reported to have been urged by the other party leaders to support the austerity package.

“The current policy mix... calls for more taxes in an economy in unprecedented recession,” Samaras told reporters as he headed into the meeting. “We need corrected policy measures to ensure that the economy recovers and that we can pay back our debt,” he said, reiterating his calls for a renegotiation of the terms of Greece’s agreement with its creditors.

In Athens, Evangelos Venizelos, the Greek finance minister, outlined measures at a press conference to plug the €5.5bn hole.

Venizelos said that talks were still ongoing with an EU-IMF delegation to finalise a new plan but the government had agreed to several steps to increase revenues. These included:

  • A one-off solidarity tax ranging between 1% and 5% depending on income;

  • Lowering the minimum threshold for income tax to €8,000 a year from its current level of €12,000;

  • Higher taxes on heating fuel;

  • A minimum tax on the self-employed, who are seen as engaging on tax evasion on a massive scale.

Venizelos said he hoped to raise an extra €400m this year through further cuts in government operating expenses but he warned that the additional measures would have to be approved both by the Cabinet and parliamentarians of the governing PASOK party.

"All conditions must be met. When you want all conditions to be met, you can't let anyone believe there is a Plan B. And there isn't a Plan B," said Jean-Claude Juncker, Luxembourg prime minister and chairman of the Eurogroup of Eurozone finance ministers, who was attending the EU summit in Brussels.

The Greek parliament is expected to be asked to approve the new measures next week.

Greece needs to get a €12bn tranche of the existing bailout program in the next two weeks to prevent a default.

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