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Victoria Mindova

In less than two months the Greek government launched a second increase in value added tax and excise duties on fuel, alcohol and cigarettes. VAT for the basic goods from 21% increases to 23%. At the beginning of the year the VAT was 19%. 10% VAT on food products is increased to 11% and 5% increases to 5.5% for publishing and other services. Indirect taxes will be increased further by 10%. The Ministry of Finance expects 1.8 billion euros in additional revenue in the national treasury from the last increases of the value added tax. At the same time the tax base will be increased for the real estate properties and according to an unconfirmed information the tax on luxury goods will reach 36 percent. With the introduction of the bilateral support mechanism Greece tightens the belt for at least three years, as long as the contract for financial support with the International Monetary Fund will apply. The changes they required are inevitable according to the Prime Minister George Papandreou in order for the country to be able to restore the normal economic rhythms. In the negotiations between the Greek government and representatives of the IMF it was reached to an agreement not to cut the 13th and 14th salary in the private sector, but there will be cuts introduced in the public sector.

From 2011 the retirement age will increase to 65 years from the current average retirement age of 60 years, as workers must have a total of 40 years service. Seniors who do not have the required length of service will receive reduced pension, regardless of reaching the required retirement age. All state employees who receive salary and supplements totaling over three thousand euros will no longer receive the 13th and 14th salary. Those who receive wages below that amount will be paid 250 euros for Easter, 250 euros for the period of annual leave and will receive 500 euros for the Christmas holidays. For Greek pensioners there will also be some redundancies. All pensioners in the country who receive a pension of more than 2,500 euros will no longer receive a "gift" for Easter and Christmas. Pensioners who receive less than this amount will be paid an extra 200 euros for the Easter holidays and the summer period and before Christmas they will be entitled to 400 euros instead of the 14th pension.

On a press conference related to the details of the activation of the bilateral financial mechanism Minister of Finance Georgois Papakonstantinou said the government reduces public investment by about one billion and a half euros for the next two years. An update of the salaries will not be introduced nor in the public nor in the private sector for the period until expiry of the contract for financial assistance. IMF requires immediate changes in the way of management and control of the tax authorities in order to improve the fight against tax evasion and informal economy. A change is required also in the conduct and reporting of public spendings, as well as a new system of calculation and payment of salaries of employees in public administration. Social insurance funds will be reduced to three, and the list of worst jobs will be dramatically shortened.

To enhance the economic growth of the country Papakonstantinu said that redundancy in the procedures for opening new businesses as well as lowering the price and number of permits issued to start the activity will be introduced. Procedures will be started for the privatization of many state enterprises, the first of which will be the state railways with a deficit of over one billion euros.

Stringent economic measures are expected to bring over the next three years around 30 billion euros. By the end of the year 2010 the government deficit should decrease to 8 percent of the GDP from the current 13.6 percent of GDP. Ministry of Finance estimates that in 2011 and 2012 the deficit will be reduced respectively by 5% and 2%, and in 2014 its value has to reach levels below 3% of GDP. The financial mechanism covers the credit needs of the country for the next three years, and the Finance Minister stressed that this period is needed for the country's economy to be put into order. According to the IMF representatives Greece needs three to four years of grace period to restore the confidence of the international markets and for the spread-s to fall. For 2010 is expected a 4 percent negative economic growth, which threatens the banking sector. The financial professionals of the fund consider that due to the recession Greek banks will need about 10 billion euros financial support to enable them to fulfill their financial obligations until the end of the year.

Changes will be introduced by law and will enter into force immediately after their voting next week. Economic analysts acknowledge that by signing the contract for financial assistance from the eurozone countries and the Internationl Monetary Fund Greece enters in a new era in its modern history. To a question asked by a British journalist from Channel 4 to the Minister of Finance George Papakonstantinou "How do you feel as the most hated man in Greece today?" The Minister replied that he did not fear paying the political price because the stringent economic measures are inevitable for the recovery of local economy.