Greece to vote on pay cuts and tax hikes

WITH three deaths on the streets of Athens and widespread protests, Europe’s political and economic leaders have moved to try to calm the atmosphere in Greece and prevent a collapse of the euro.

Ahead of today’s vote in the Greek parliament on the massive pay cuts and tax hikes in exchange for a €110 billion bailout, the EU’s finance chief, Ollie Rehn warned of the dangers of “economic contagion”.

“It is so important to stop this bush fire before it becomes a forest fire,” he said, adding that he believed the euro countries’ decision to lend to Greece was a turning point.

“We will be able to make sure there is no spillover effects and the situation will improve, but we need to have robust growth, and everyone is aware of this danger.”

Mr Rehn was speaking as he upped his growth forecast for the EU by 0.25% to a modest 1% this year and to 1.75% in 2011, largely due to the unexpectedly strong recovery in Asia and other world markets.

Ireland will lag behind this year but is predicted to be one of the growth leaders in 2011.

But the speculators did not appear to be listening as the euro fell against the dollar to a one-year low and stock markets were hit across Europe.

The markets also fear that the authorities will not be able to get the situation on the streets of Athens and other cities under control. They fear that rioting will continue for weeks, as it did following the shooting of a 15-year-old student by police in December 2008.

Meanwhile, German chancellor Angela Merkel, nicknamed the Iron Chancellor for her harsh reaction to Greece’s plight just weeks ago, pleaded with her parliament, the Bundestag, in Berlin to agree to pledge Athens €22.5bn over the next three years.

To the jeers of those MPs who derided her for delaying so long in agreeing to the bailout and others who objected to it, Dr Merkel told them: “It’s about nothing more or less than the future of Europe and with it, the future of Germany in Europe.

“We are at a crossroads. There is no alternative to the planned aid for Greece if we want to secure the financial stability of the euro area. It must be done so we can fend off a chain reaction in the European and international financial systems and the risk of contagion spreading to the other euro-member states.”

The Bundestag is to vote on the measure on Friday and is expected to approve it. But such a decision will be swiftly followed by a challenge to Germany’s powerful constitutional court that has forced several adjustments in EU policy over the years.

Five senior figures, retired economics and law professors, a former governor of the German central bank and a former chief executive of the giant German company Thyssen AG will ask the court to judge whether the loan is legal or not.

The leaders of the 16 eurozone countries will meet in just the second ever such summit in Brussels on Friday evening amid questions as to why such a meeting was needed.

It is hoped they will consider the need to regulate financial institutions and bring in tougher rules for the eurozone state finances.