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Greece plans more austerity as Italy 'advances cuts'

Greece plans more austerity as Italy 'advances cuts'
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Pressured by Brussels and the ECB, Greece is speeding up its privatisations. Reportedly Prime Minister George Papandreou at a cabinet meeting to discuss new emergency austerity measures, agreed to Hellenic Postbank and the country’s two biggest ports being sold, to be followed by utilities.

A raft of new austerity measures being studied by the Greek government include deeper cuts in public sector wages, more consumer tax increases, and even the taboo issue of dismissing full-time civil servants.

At stake is a 12-billion euro aid tranche under the EU/IMF bailout agreed last year, as well as additional loans needed to plug a funding gap next year as the overborrowed country is unlikely to return to bond markets in 2012.

On Monday EU Economic and Monetary Affairs Commissioner Olli Rehn pressed Athens to redouble its fiscal efforts and press on with privatisations.

“These are a matter of urgency,” Rehn said in a speech to a conference on European integration in Vienna.

But critics, including Greece’s conservative political opposition, say the policy mix is wrong, hindering the economy from growing out of the debt mess.

Worried about the fallout of a default, the chief executive of Europe’s largest insurer, Allianz, on Monday warned governments not to push Athens toward insolvency by blocking further aid to Greece.

“We need an industrialisation plan for Greece, a type of Marshall Plan. European labour and production need to be shifted to the country,” CEO Michael Diekmann told German daily Bild.

At the same time, after Standard & Poor’s cut its rating outlook on Italy to “negative” Rome will reportedly bring forward plans for slicing 35 to 40 billion euros off its budget deficit moving to reassure markets.

The downward revision, which raises the risk of a downgrade of Italy’s sovereign rating, may heighten fears that contagion from Greece’s and other European countries’ debt crisis could be spreading to the euro zone’s third-largest economy.

“In our view Italy’s current growth prospects are weak, and the political commitment for productivity-enhancing reforms appears to be faltering,” Standard & Poor’s said in a statement at the weekend.