EU to tell Greece to do more to cut deficit

The European Union will tell Greece next week to take additional measures by May 15 to shore up its finances and cut a spiralling deficit, Greek newspaper Ta Nea said on Saturday, citing a draft of the recommendations.

The European Commission's recommendations, due to be made public on Feb. 3, include cutting nominal wages in the public sector and setting a ceiling for high pensions, Ta Nea said.

Greece is seeking EU approval for an austerity plan it presented this month to reduce its budget deficit to below 3 percent of GDP by 2012 from 12.7 percent in 2009 and avoid a debt crisis seen as a threat to the euro zone.

The Greek finance ministry declined to comment directly on the report but said in a statement to Reuters the EU recommendations would be based on its own deficit-cutting programme.

"There is no issue of the EU rejecting the Greek growth and stability programme," the statement said.

The Greek plan includes welfare spending reductions and cuts in special allowances which make up a large part of Greek civil servants' overall income. This would translate roughly into a 3 to 4 percent cut in the public wage bill, unions say.

Under the headline "Urgent measures to be taken by 15 May 2010", the EU document will tell Greece to "cut average nominal wages, including in central government, local governments, state agencies and other public institutions."

The EU will also urge Greece to introduce advance tax payments for the self-employed and possibly a tax on luxury goods, according to the document, excerpts of which were printed by Ta Nea. Most other recommendations, as reported in the paper, are already part of the Greek plan.

Greece has been hit hard on international markets, with bond yields soaring and shares plummeting, after the country's new Socialist government revealed in October its budget deficit was twice as big as previously announced and more than four times the euro zone ceiling of 3 percent of GDP.

Concerns that Athens may not be able to service its debt have put pressure on the euro and raised questions over whether fellow euro-zone member states would come to Greece's rescue.

Prime Minister George Papandreou's government, which came to power on a promise to tax the rich and help the poor to get Greece out of recession, has announced nominal wage freezes for civil servants earning more than 2,000 euros a month. It plans to award pay increases in line with inflation to all others.

The biggest public sector union, ADEDY, has called a 24-hour strike for Feb. 10 to protest against the austerity measures.

Papandreou said in Davos this week he would speed up introduction of a tax reform, by the end of February, and that he would also introduce changes to the pension system by the end of April.