A rescue to alarm the zone

3 May 2010 By Ian Campbell

Greece is being saved by an EU and IMF bailout of staggering size. The Greek share of pain is punishing austerity. Yet the plan is unlikely to make Greece solvent and able to grow. The EU must act swiftly to prevent other countries heading along the Greek road to crisis.

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The EU and the International Monetary Fund announced on May 2 a joint 110 billion euro package of support for Greece. EU countries are to provide 80 billion euros, the IMF 30 billion.

In return the Greek government must implement a severe programme of spending cuts and tax increases with the aim of reducing the fiscal deficit to 8.1 percent of GDP this year, from 13.6 percent of GDP in 2009, and to 2.6 perent of GDP by 2014.

The Greek government announced additional austerity measures. It will abolish the 13th and 14th month pay checks for public sector workers and eliminate bonuses for those earning more than 3,000 euros per month. There will be no increases in public wages and pensions for four years. The rate of VAT will be raised to 23 percent from 21 percent. Taxes on tobacco and fuel will be raised by 10 percent.

The European Central Bank said that it would continue to accept all Greek government bonds as security for loans despite the downgrading of the country's debt to junk status by one rating agency.

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