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Greece agrees even deeper austerity cuts

Greece agrees even deeper austerity cuts
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A senior Greek government official has said Athens has agreed to 6.4 billion euros in new measures to cut its 2011 budget deficit.

It also aims to wrap up talks with international inspectors from the EU, International Monetary Fund and the European Central Bank by Friday to secure the next tranche of its existing 110 billion euro bailout, but is not yet started negotiating another rescue plan for the future.

Prime Minister George Papandreou would present the main points of the government’s medium-term budget plan when he meets Jean-Claude Juncker, the chairman of euro zone finance ministers, in Luxembourg on Friday

However, more money will be needed in the future. Economist Peter Dixon from Commerzbank believes Athens will get a new bailout to pay back its more immediate debts: “That will give the Greek state sufficient time to get its liabilities in order and finance its way over the course of the next couple of years probably. But I suspect that in the long run, the Greeks will have very little choice but to impose some sort of haircut on the debt.”

In the financial world, a haircut means those who have lent money to Greece would not get all the interest they were promised.

Greeks meanwhile promise to keep up their protests against privatisations as well as tax increases, lower income tax exemptions and cuts in government spending.

There is also unease stirred within Papandreou’s Socialist party (PASOK), which has 156 seats in the 300-member parliament.

With only a few exceptions, PASOK lawmakers have so far solidly backed painful austerity measures imposed under last May’s EU/IMF bailout deal, which cut civil servants’ wages by about a fifth last year and pushed unemployment to record highs.

But ruling party MPs have become increasingly critical of the government, after a failure to meet budget targets under the bailout deal has led to ever more belt-tightening.

A group of 16 backbench members of parliament have now sent a letter to Papandreou seeking a full party debate on the package before it is goes to parliament, possibly as early as next week.

“It is not just a matter of political responsibility, logic demands that we take stock. It is a matter of patriotism and democracy,” the MPs said in the letter according to a Reuters report.

Lawmaker Tonia Antoniou, who signed the letter, said this did not mean the MPs would vote against the medium-term plan but the signatories wanted a proper debate. “We must discuss all these decisions very seriously,” she said.

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