Greece agrees austerity plan, unions vow battle

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Greece announced swingeing spending cuts Sunday to clinch a 110 billion euro international bailout, warning that widespread sacrifices were needed to save the country from bankruptcy.

The government said people would have to work longer before they can retire, public workers would lose year-end bonuses and sales taxes would go up under a deal with the European Union and IMF aimed at averting bankruptcy.

In return, Greece will get around 110 billion euros (146 billion dollars) in loans over three years, according to a draft deal to be endorsed by eurozone finance ministers later Sunday, a diplomatic source said in Brussels.

Unions immediately voiced their dismay and vowed to step up their campaign agains the cuts.

"With our decision today our citizens will have to make big sacrifices," Papandreou said in a televised address during an extraordinary cabinet meeting, one day after police clashed with protesters angry at the austerity drive.

Yannis Panagopoulos, president of the million-member strong GSEE union, denounced the austerity plan as the "most unfair and hardest measures in the modern history of Greece."

"They are going to worsen the recession and plunge the economy into a deep coma," he added. "It's time to step up the social battle, our May 5 general strike will be the beginning of a long battle."

EU Economic Affairs Commissioner Olli Rehn said he was confident that the finance ministers of the 16-nation eurozone would approve the loans.

Greece has been under heavy pressure to cut a massive public deficit that has rattled international markets and sparked fears of contagion to other heavily indebted European countries.

The country faces an urgent need for help with nine billion euros in debts due on May 19.

In exchange for emergency loans, Greece agreed new budget cuts of 30 billion euros over three years with the aim of slashing the public deficit to less than three percent of output by 2014, said Finance Minister George Papaconstantinou.

The deficit reached 13.6 percent of gross domestic product last year.

Among the major measures to make the budget cuts, the Greek government is to scrap bonus 13th and 14th month wages for public sector workers as well as for retired people from both the public and private sectors, Papaconstantinou said.

The retirement age for for women will be raised starting next year from 60 to 65, bringing it in line with that for men. From 2015 workers will have had to pay retirement contributions for 40 years to get their pensions compared with 37 now.

The sales tax is to be raised from 21 percent currently to 23 percent this year.

Papaconstantinou said the measures were the "only road to save the country", which was threatened with default on debts totalling nearly 300 billion euros.

However the European Central Bank warned Greece that it would have to "stand ready" to make more cuts even after the 110 billion euro package is approved.

The ECB's governing council "considers essential that the Greek public authorities stand ready to take any further measures that may become appropriate to achieve the objectives of the programme," said a statement.

Germany, which had been reluctant to approve a bailout, warned Greece that it must rapidly implement the austerity measures.

Greece faces a long road out of recession as the finance ministry announced that the economy would shrink by four percent this year, instead of the previously estimated 2.0 percent, and only return to growth in 2012.

The debt is expected to rise from 133 percent of output this year to peak at 149 percent in 2013 before beginning to fall again in 2014, the ministry said.

After months of hesitation, eurozone countries decided to accelerate rescue efforts for Greece out of fear its debt crisis could pull down other members with severely strained public finances such as Portugal or even Spain.

"Today the fire risked extending not only to Greece but to the eurozone and beyond," Papandreou said.

"The cost of extinguishing it is very high, and it's very high for Greek citizens."

After eurozone finance ministers back the deal, the funding will have to be approve by some parliaments, including the German and French legislatures.

The government, the EU and the IMF wrapped up negotiations on Saturday as 15,000 people swarmed through the streets of Athens in May Day protests against the austerity drive.

© 2010 AFP

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