Greece warned to 'cut more'

Greece has been warned it must carry out even more austerity cuts if it is to reduce its crippling debts.

The International Monetary Fund’s top official in Greece said the government would not escape high budget deficits unless it switched efforts to spending cuts, arguing that the country’s taxpayers had reached the limit.

“There are no more low-hanging fruits,” Poul Thomsen told a financial conference in Athens. “We have clearly reached the limit of what can be achieved through raising taxes ... Lesson: We have to move the expenditure side.”

Mr Thomsen urged the government to “move aggressively” reduce the size of the public sector.

“We are also warning that unless there is an acceleration of reform in the public sector – the deficit will get stuck at around 10%,” he said.

“Greece might have to accept involuntary redundancies ... and address the legacy of too high and inflexible wages,” he said. “I cannot see how fiscal recovery can proceed without addressing these taboos.”

The IMF and eurozone countries have been propping up Greece’s economy with rescue loans since May, 2010 – imposing harsh spending-cut demands that have driven the country into recession.

Greece has admitted it will miss its deficit targets this year, with revenues still weak despite draconian tax hikes.

Greece is currently negotiating the terms of a second, massive rescue package with eurozone partners and private bondholders.

Finance Minister Evangelos Venizelos said the terms of that agreement cannot be amended by future governments – effectively locking the country into the deal through 2015.

Mr Venizelos is part of the month-old coalition government tasked with negotiating the deal ahead of a general election expected in the spring.

Economic forecasters say Greece is heading toward its fourth year of recession in 2012.