Southern eurozone nations an­nounced or adopted further austerity measures last week to stabilise public finances and calm nervous markets as the Greek debt crisis came to a head in Athens.

Greece

Greek lawmakers approved a second round of austerity measures last Wednesday and adopted implementing legislation on Thursday.

Greece pledged last May to cut €30 billion from its public deficit by 2014 in order to land a three-year rescue loan from the EU and IMF worth €110 billion. The mix of pension reforms, public sector salary cuts and VAT tax hikes helped push the public sector deficit down by five percentage points to 10.5 per cent of GDP in 2010.

The correction was not enough, however, to meet agreed targets so the EU and International Monetary Fund insisted that Athens save another €28.4 billion by the end of 2015, including €6.4 billion this year.

The EU and IMF insisted on the additional austerity measures in order to continue lending under last year’s rescue package, as well to put together a second rescue package also expected to be worth nearly 110 billion euros.

The new austerity measures include further tax hikes, cuts in state benefits and reducing the size of the civil service.

In addition, Greece is to sell state property in order to raise up to €50 billion, which would help reduce a total debt that is rapidly approaching €350 billion.

The measures overall should help Greece reduce its public sector deficit to 2.5 per cent of Gross Domestic Product in 2015, within the EU limit of three per cent.

Italy

With two credit ratings agencies warning that they may downgrade Italy, the government of Prime Minister Silvio Berlusconi was set to approve last Thursday an austerity programme worth about €47 billion to reassure investors. Italy has come in for particular scrutiny because of its low growth and high debt – it has one of the highest public debt ratios among industrialised nations at 120 per cent of GDP.

The government says it aims to cut the public deficit to 0.2 per cent of GDP by 2014 from 4.6 per cent in 2010.

Most of the new measures concern 2013-2014, and follow a €25-billion austerity plan adopted last year that sparked a wave of social protests.

The plan, which must also be approved by parliament, was expected to include a 0.15 per cent tax on financial transactions, a cut in ministers’ pay and an extension of the current freeze on public sector salaries and hiring.

Portugal

Portugal’s new centre-right government was to unveil last Thursday austerity measures to stabilise public finances which are expected to be even tougher than those demanded by the EU and IMF for their debt bailout earlier this year.

Press reports suggest the government might levy an additional salaries tax and increase sales tax for certain goods and services from July.

The EU and IMF agreed a €78-billion debt rescue plan with Portugal in April. In return for funding, Lisbon agreed to cut its public deficit to 5.9 per cent of GDP by the end of the year from more than nine per cent in 2010 and to bring within the EU limit of three per cent of GDP by 2013.

Prime Minister Pedro Passos Coelho’s government has indicated it wants to beat the targets to ease international pressure and that it is ready to sacrifice such high-profile projects as the high-speed rail link between Lisbon and Madrid.

Spain

Spain’s government announced last Tuesday it will impose a spending cap on powerful regional governments as it seeks to cut further a deficit that markets fear could make the country the next eurozone debt victim.Madrid has promised to slice the public deficit to six per cent of GDP this year and to the eurozone limit of three per cent in 2013.

But while the central government managed to cut the deficit from 11.1 per cent of GDP in 2009 to 9.24 per cent in 2010, the regions pushed up their deficit from 1.92 per cent to 2.83 per cent.

The central government has previously pushed through austerity measures and structural reforms to keep Spain from being forced to seek a bailout.

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