Greece: Govt Will Cut Spending But No New Taxes

December 12, 2011 - 11:20 AM
Greece Financial Crisis

Poul Thomsen, left, the director of the IMF's mission to Greece, arrives at the Greek Ministry of Finance, in Athens, on Monday, Dec. 12, 2011. International austerity inspectors are visiting Greece for talks on a second rescue loan package agreed weeks ago but not yet finalized.Officials from the European Union, the European Central Bank and the International Monetary Fund are due to hold meetings at the finance ministry later Monday. (AP Photo/Petros Giannakouris)

ATHENS, Greece (AP) — Greece will cut spending further but it won't impose new taxes, its finance minister said Monday, adding that talks with international debt inspectors on a second rescue package were at a "difficult and critical" stage.

Finance Minister Evangelos Venizelos said spoke after meeting in Athens with officials from the European Commission, the European Central Bank and the International Monetary Fund on how to keep his debt-strapped nation afloat.

"It's not a question of whether we can impose more taxes — we cannot. It is not a question of whether we must cut spending more — we must," Venizelos said. "There is much more to be done."

Greeks have already seen several rounds of tax increases in more than two years under austerity measures. Salaries and pensions have also been slashed as the country struggled to meet the terms of its first international bailout, granted in May 2010.

That first euro110 billion ($147 billion) bailout package from Greece's European partners and the IMF came after years of government overspending and data falsification provoked credit downgrades that made it too expensive for Greece to borrow. That bailout staved off bankruptcy, but halfway through it became clear the loan was not enough.

In October, a second euro130 billion ($174 billion) rescue loan deal was agreed upon, although the details are still being.

The representatives of the ECB, the European Commission and IMF, on whose assessments Greece's cash lifeline depends, are expected to remain in Athens for about a week.

"The discussions are difficult and critical. The country must take very important decisions. There is no room for any evasion," Venizelos said during a news conference in Athens.

The second deal forgives about 50 percent of Greece's overall debt — a euro100 billion ($134 billion) — by private holders of Greek government bonds, on which complex talks with banks started last month and are expected to take several more weeks.

On Monday, Venizelos also met with Charles Dallara, managing director of the Institute of International Finance, a global bank lobbying group, who is leading talks with Athens on the debt writedown.

Greece is heading into a fourth year of recession amid soaring unemployment, which are hampering its efforts to contain government spending and move toward fiscal health.

"The recession is worse than any prediction. We are in out third successive year of recession and heading to a fourth," Venizelos said. "For this to end, the atmosphere must change. Banks must feel secure, and we must fully fulfill the decisions of Oct. 26."

But Venizelos insisted no new austerity measures would be taken next year, as long as Greece fully implements those it has already committed to.

Preliminary data shows that Greece's economy will probably contract by more than the official estimate of 5.5 percent in 2011. Lagging revenues also mean the government will be pressed to meet its deficit target of 9 percent of GDP this year and a projected primary surplus in 2012.

Venizelos indicated this year's targets could be missed.

"The last quarter is the most important in the budget year (and) unfortunately (it) coincided with a major spell of uncertainty," he said.

To battle tax evasion, Venizelos said Greece would sign a deal with Switzerland shortly on potentially taxing Greek funds in Swiss bank accounts. The deal will be similar to agreements Switzerland has with Britain and Germany.

Greek authorities were looking at Greek funds sent to Swiss bank accounts in 2009 and 2010, and were awaiting details for 2011, Venizelos said. If inconsistencies were found between declared income and money sent to such accounts, then cases would be investigated.