FEBRUARY 22, 2010, 5:13 P.M. ET.
By COSTAS PARIS And ALKMAN GRANITSAS
ATHENS—Greece faces a crucial week, with a delegation of European Union and International Monetary Fund officials arriving in Athens to discuss further austerity measures to fix the country's bloated budget deficit.
Their arrival coincides with government plans to test the waters with its second bond issue of the year and with preparations by trade unions to stage a general strike Wednesday.
The government will be meeting with representatives from the European Commission, the European Central Bank and IMF technical experts to discuss a new set of measures valued at about €2.5 billion ($3.4 billion) over and above what it has already announced to cut the deficit.
Greece is under intense pressure by the EU and financial markets to narrow its budget gap, which hit an estimated 12.7% of gross domestic product last year, four times above EU limits. The Socialist government has pledged to narrow that deficit to 8.7% of GDP this year, and below the EU's 3% limit by 2012.
"Despite worries of social unrest, the government will discuss the new measures with the visiting delegation and is prepared to do what's needed to calm down the markets and address European Union concerns," a person familiar with the Greek government's thinking said. "The new package will be announced before the March 16th meeting of the (European) finance ministers. Greece will do its part," the person said. "Now it's time for the European partners to show their solidarity."
Earlier this month, EU leaders pledged solidarity with Greece as it struggles to cover €54 billion in borrowing needs this year. So far, that solidarity has only been manifested in a political statement, while reports say the EU is preparing a package of loans and loan guarantees—but under the condition that Greece takes further measures to control its deficit.
That package would most likely be linked to plans by Greece to raise €3 billion to €5 billion through a 10-year bond issue, its second this year, which could hit the markets as early as this week. The person said one possible idea being considered is that other EU members would cover any shortfall in the event that market interest in the issue was limited.
Greece hasn't asked for any money, but the person said that if the need arises Athens would prefer a long-term loan of as much as €25 billion rather than bond guarantees from EU partners.
"The government is pretty certain that the bond issue will be covered, but in the worst-case scenario, it expects the remainder to be picked up by European partners, like France and Germany," said a second person close to the government.
The new measures under discussion include an increase in Greece's current value-added tax rate of 19%, more cuts in civil-service entitlements, higher duties on luxury items such as boats and expensive cars and possibly a further rise in fuel taxes.
The first person said the EU has also asked Greece to cut one of two extra months of pay that public-sector workers now get over and above their normal 12-month salary, but that the government would do so only "as a last resort."
The government has already announced a series of measures that include freezing civil-service wages, cutting public-sector entitlements by an average of 10% and closing dozens of tax loopholes for certain professions, including some civil servants.
However, those measures have already stoked resistance by Greece's unions, with the public-sector umbrella union Adedy to stage a 24-hour strike Wednesday, joining a separate strike that has been called by its much bigger private-sector counterpart, GSEE.
The strike is seen as the first major test of the government's commitment to push through its harsh austerity program. So far, the government has resisted demands by farm groups seeking further handouts, while separate strikes by tax collectors and customs officials have been called off or else ruled illegal.
Recent opinion polls show that the public remains behind the government. According to one, published this Sunday in the left-leaning Ethnos newspaper, 75.8% of Greeks think the unions should suspend all strike action for as long as Greece remains mired in crisis, while 57.6% think the austerity measures proposed so far are in the right direction.
"The government is determined not to bow to any workers' demands regardless of how just they are," the second person said. "These are extraordinary times and every single Greek must understand that sacrifices are needed."
The Greek government is also under pressure from the European Commission to provide information about a series of currency deals it might have used to mask its debt.
Greece has offered only a "partial" response to the Feb. 19 deadline to disclose details of the transactions, the commission said Monday.
The commission's request for information followed reports that Goldman Sachs Group Inc. had helped Greece conceal its debt levels through a series of complex derivatives deals.
"We have received some information, but not all the relevant information," said the commission's spokesman on economic issues, Amadeu Altafaj.
He added that the Greek government has told the commission that strikes in the country last week made it difficult to compile all the relevant information. A Greek government official in Brussels confirmed that strikes affected the finance ministry in Athens last week and that officials have asked the commission for more time to deliver a full report.
—Adam Cohen contributed
to this article.
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