Today the world markets are holding their breaths as they wait for the decision – the Greek parliament’s decision, that is. Beginning at 8:00 am in London (3:00 am in New York), the Greek parliament will finally vote on a new set of austerity measures needed to get another bailout package.
Why another bailout? Recall that in April 2010, Greece formally asked the European Union (EU) and the International Monetary Fund (IMF) for bailout money. At the request, Greece had received a 45-billion EUR bailout fund on the condition that the government would implement a set of austerity measures.
Now, almost a year and a half later, Greece is still strapped for cash, and is asking for more money from authorities. But this time around, the EU and the IMF won’t just be handing money like a sugah daddy.
To get the additional moolah, Greece must first pinky-swear to implement additional austerity measures. This is difficult not only because the Greek citizens are already causing ruckus in the streets with their protests, but also because the parliament itself is divided on whether they could implement the new set of belt-tightening rules.
So what exactly what will they be talking about in their hours-long session? Let me give you a rundown of the budget plan which the Finance Ministry submitted to parliament last June 9.
In the five-year austerity measures proposal, the government hopes to raise 6.4 billion EUR in 2011 alone by cutting down spending on education, defense, and health. It is also estimated that the civil service sector will have to lay-off about 175,000 workers in the coming years. Then, over the next three years, cutbacks are estimated to reel in sovereign spending to 3% of GDP and save about 28 billion EUR.
In addition to the changes above, Finance Minister Papaconstantinou also proposed to charge those employed by the government a “solidarity tax,” which would fall between 1% and 4% depending on their incomes. According to him, the collected money will be used to set up an emergency fund for the unemployed.
On top of that, big ballers who own large properties, cruise in their yachts, and chill in their guitar-shaped swimming pools will also have to pay an emergency tax. Meanwhile, value-added taxes paid by restaurants and bars would also go up to 23% from the current 13% level under the budget plan.
Another part of the government’s proposal is to sell off some of its assets to the private sector. Airports, banks, state-owned companies and real estate would be sold to raise 50 billion euros in privatization by 2015.
Looks like the plan isn’t exactly a walk in the park is it? It’s no wonder the Greeks are wearing their smiles upside down.
If my home boy Greek Prime Minister George Papandreou secures enough votes for approval of the austerity measures, the government would be one step closer to getting the country out its debt rut.
The next phase would probably be for it to get a thumbs up from credit rating agencies and convince them not to cut its credit rating to default levels.
On the other hand, if we don’t see a united Greek parliament, maybe it’s time we say bye-bye to EUR/USD all the way down to 1.4000.