Europe Demands More Austerity Measures From Greece As Critical Bond Auction Looms
A delegation consisting of EU, ECB and IMF "experts" came to Greece, saw and said "more cuts." Greece, in turn, is doing all it can to soft circle enough support to come to market with a €3-5 billion 10 year bond issue, and has no option but to oblige. The troubled PIIGS member has so far proposed a 5.5% maximum cut in gross salaries to civil servants via entitlement cuts, while the EU is now suggesting an average 7% cut. How this will be accepted by Greece's already striking unions, whose protesters earlier barricaded and shut down the primary building of the Athens Stock Exchange, is unknown but will hardly inspire enthusiasm for wage cutting programs.
As Dow Jones reports:
Already, public-sector umbrella union ADEDY and its private-sector counterpart, GSEE, have announced plans for a 24-hour general strike Wednesday.
The strike is seen as the first major test of the government's commitment to push through its harsh austerity program. So far, the government has resisted demands by farm groups seeking further handouts, while separate strikes by tax collectors and customs officials have been called off or else ruled illegal.
Here are more details on what the revised austerity package may end up looking like:
The new package that may come next week is likely to include an increase in the current value-added tax rate of 19%, more cuts in civil-service entitlements and higher duties on luxury items such as boats and expensive cars. Greece is also mulling a further hike in fuel taxes, while the EU has also asked Athens to cut one of two extra months of pay that public-sector workers now get over and above their normal 12-month salary--a move the government is resisting.
Yet with carrot of a critical funding requirement over the next month being all that is needed, it is certain to make the government promise anything and everything just to be able to auction off its upcoming bond issue, which will likely require EU bank support in some version.
Greece needs to raise about EUR54 billion this year and has so far borrowed EUR13 billion. It plans to raise EUR3 billion to EUR5 billion as early as this week through a 10-year bond issue. In the event that the bond issue fares poorly or fails, one possible idea being considered, is that EU members such as France and Germany would cover any shortfall, the person said.
And so the bandaid rescue operation of Europe (and the world) continues: each day we don't see a sovereign default, thank you Rogoff, is a day seen as success. Alas, the event horizon of this particular debt black hole is approaching closer.