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Olli Rehn announced a new austerity in Greece

20 October 2010 / 09:10:35  GRReporter
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Greece is very likely to resort to new belt-tightening in 2011, said the European Commissioner for Economic and Financial Affairs, Olli Rehn, after it became clear that the budget deficit reaches at least 16%. He did not rule out the possibility the Mediterranean country to make further cuts if the European Statistical Office Eurostat officially announces the restated deficit. These cuts should be made to ensure the achievement of the goals outlined in the Memorandum of financial support to reduce the budget deficit to 3% of GDP by the end of 2013.

The President of Eurogroup Jean-Claude Juncker made a more moderate assessment of Greece in the coming 2011. He said that everything depends on the mix of policies and measures that are still subject to discussion and whether it will reduce the deficit by the beginning of 2014. He decided to support the present PASOK government and explicitly stated that should any changes in the amount of the government deficit be established they are not the result of mistakes and inaction of the current Greek government.

Furthermore, Olli Rehn added that most likely Eurostat will extend the stay of its mission in Athens to November 15 this year to give complete clarity on the financial situation of the country. Both the Greek government and the representatives of the International Monetary Fund and the European Union will examine and take into account all research data in order to draw up a final version of the next year's budget. It is expected to be officially announced on November 18 when finally it will become clear what the Greeks should expect from the next fiscal year.  

Before this, the Greeks will have to submit their votes for local government. The opposition and media, and political analysts believe the government, together with the European Commission deliberately delayed to announce the results of the verification of Eurostat. The second round of elections for local authorities is on November 14 and no one wants to take the risk to announce any new measures before it.

Currently, the Greek PASOK government pledge to earn more resources to reduce the revenue and expenditure gap in the state budget through increasing the tax base on property tax, a new increase in the average VAT rate and the tax on vehicles. The luxury tax we know from the last year will have a new higher rate and it is not excluded the excise duty on heating and transport fuel to be equalized. Tax amnesty is another way to quickly accumulate funds but it may not bring the expected results. Once retailers and enterprises in the country supported the idea that it is better to undergo a tax audit than to oblige to pay excessive amounts tax amnesty may not bring the expected € 1.5 billion for 2011.

"We will not introduce new taxes than those already provided in the 2011 budget because the market will surely shrink," promised the Secretary General of Taxes at the Ministry of Finance Dimitris Georgakopoulos. He said more efforts will be made to tighten the control on the informal economy and fight tax evasion. This, of course, is an objective that any previous Greek government has put in the past, but unfortunately little has been achieved in practice. At present, society does not believe that the government is able to cope with rampant corruption and it seems quite illusory the government to raise the necessary funds through seizing unfair payers.

If there won’t be further increase in the tax burden after the announcement of the restated deficit, the government of George Papandreou is facing its only alternative - cost cutting. In most cases, it undoubtedly brings broad public discontent in Greece and supported by the Union of Greek civil servants it means new strikes, protests and riots against the policy pursued.

Tags: EconomyMarkets2011 budgetOlli RehnAusterity
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