Greek PM orders tough austerity measures

The Greek Prime Minister has ordered a public salary freeze, a higher retirement age and a hike in petrol prices in a desperate bid to tame a debt crisis.

Socialist leader George Papandreou urged political rivals to back his crisis budget as he launched a new bid to reassure the international finance community. The scope of Greece's debt and its 12.7 per cent public deficit have shaken the euro and put pressure on Greek sovereign bonds.

"We must act in an imminent and efficient manner and it is for that reason that I called on the political parties to support this national effort," he said in a nationally televised address.

"It is a national duty not to leave the country on the edge of an abyss."

The government has already ordered major cuts in public spending and vowed to clampdown on corruption which Mr Papandreou has admitted is "rampant", waste and tax avoidance.

Among the new measures was a total freeze on the salaries of public servants, a rise in the legal retirement age and a higher petrol tax. He gave no details on the retirement age or tax rises.

The Greek plan sent to the European Union only foresaw a freeze on wages above €2,000 a month and the same age for men and women retiring.

The European Commission yesterday gave its verdict on Mr Papandreou's measures to cut debt estimated at €294 billion and to cut the deficit to 8.7 of gross domestic product this year.

Under EU rules, government deficits have to be below three per cent to be a member of the eurozone.

European Commission chief José Manuel Barroso said that Greece's programme was "feasible but subject to risks". He said the Commission would recommend that the EU endorse the Greek plans, though keep the country under "intense surveillance".

"A deficit of such a magnitude must be decisively corrected. Moreover the government debt in Greece is excessively high," he said.

Right-wing opposition chief Antonis Samaras and the far-right indicated they would support the measures, but the radical left and the communists opposed them, saying they "serve the speculators".

The Greek media called the new austerity measures "hardline".

The pro-business Kathimerini daily said Mr Papandreou had been forced to act by the "asphyxiating pressure of the markets". The left-wing Ethnos daily ran a front page headline saying: "Shock Measures Ordered by Brussels. EU approval of the budget would help ease market pressure on Greece, which has grown drastically amid investor doubts about the government's ability to tackle the debt. The yield gap or spread between Greek and German bonds, which are considered the safest in the eurozone, last week hit the highest levels in a decade.

Greece is among a growing number of EU countries hit by growing debt and Mr Papandreou expressed support on Tuesday for the idea of a eurozone government bond.

"Eurobonds could be used to lend member states at a lower spread, a lower interest rate compared to the international market, particularly in this environment of speculation," he said at a conference in Athens.

"When Greece talks about eurobonds it unfortunately works negatively, it is seen as a weakness. The issue of the bonds will hopefully happen," he said.

At the conference, Nobel-winning economist Joseph Stiglitz, a former chief economist at the World Bank and an adviser to several governments hit by the economic crisis, called for a system to aid debt-hit EU states.

"(There is) a lack of European macroeconomic structure to help countries with particular difficulties," he said, noting that in the United States the national budget can be used to help states in trouble.

While the European Central Bank regularly lends money to national banks at interest rates lower than the international market, the same option is not available to governments, Prof. Stiglitz said.