By Harry Papachristou and Renee Maltezou
ATHENS | Mon May 30, 2011 7:55am EDT
(Reuters) – Greece’s conservative opposition demanded tax cuts on Monday as the price for a consensus deal with the Socialist government on imposing yet more austerity, a major condition for getting further aid from the EU and IMF.
Conservative leader Antonis Samaras called for a flat 15 percent corporate tax and rejected government plans for hiking taxes to tackle Greece’s budget deficit and please fiscal inspectors mulling the next, key tranche of a 110 billion euro bailout.
«You want to raise taxes and reach consensus with us, who have set reducing taxes as a priority? Don’t even think about it,» Samaras said in remarks addressed to the government.
«Lower tax rates are the key to starting the engine of the Greek economy,» he told members of parliament from his New Democracy party. «If you raise taxes, there will be no room for consensus or for renegotiation.»
Prime Minister George Papandreou is seeking broad political agreement on measures to tackle Greece’s crisis and prevent Athens from defaulting on its debt, an event the European Central Bank said would create mayhem in the banking system.
Papandreou’s PASOK party holds a comfortable parliamentary majority, but international lenders want all leading parties to support the austerity which they have set as a condition for loans — something which politicians in Portugal have accepted.
Officials from the European Union, ECB and International Monetary Fund — known as «the Troika» — are expected to deliver their verdict soon on Greece’s faltering drive to bring its budget deficit under control.
Their progress report will probably be presented by the end of this week, «possibly a bit later,» a spokesman for the German finance ministry said in Berlin.
The biggest EU contributor to the bailouts, which Ireland and Portugal have also taken, is Germany, and public opinion there is hostile to extending yet more loans to any country which fails to get a grip on its finances.
Financial markets are anxious for the Troika report which will determine whether Greece receives the next 12 billion euro bailout tranche, key to meeting 13.7 billion of imminent funding needs.
Athens has struggled to meet its deficit reduction targets, heightening the risk of a default on its 327 billion euro debt — equivalent to 150 percent of economic output.
ECB board member Lorenzo Bini Smaghi issued a dire warning against default and told the Financial Times it was a «fairytale» to think that Greece’s debts could be restructured in an orderly way. [nLDE74S0K3]
«If you look at financial markets, every time there is mention of a word like ‘restructuring’ or ‘soft restructuring’ they go crazy — which proves that this could not happen in an orderly way, in this environment at least,» he said.
«If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalization — but where would the money come from?»
Greece could instead reduce its debt by privatizing assets and changing its tax and expenditure systems. «If you look at the balance sheet of Greece, it is not insolvent,» he said.
Greek public patience is wearing thin. About 400 workers at Hellenic Postbank (TT), which the government wants to privatize, marched to parliament on Monday, chanting «Hands off TT» and «Never, Never, Never!.»
The night before, tens of thousands packed a central Athens square to denounce politicians and vent their anger at the IMF and its demands for yet more belt-tightening.
Mobilised by Facebook rather than opposition parties or unions, they booed, whistled and chanted «Thieves! Thieves!» as they pointed at the parliament building.
«The IMF should get out. There are other solutions without them,» said Ifigenia Argyrou, a 57-year-old insurance consultant.
Under the bailout plan, Greece would return to bond markets next year but that now seems improbable, so the EU is preparing a new aid plan to cover Greece’s 2012-2013 funding needs in exchange for yet more austerity, reforms and privatizations.
German weekly magazine Der Spiegel fanned fears over the weekend Greece might not get the money, saying it might have missed all fiscal targets set by its lenders.
Both Greece and the IMF denied the report.
(Additional reporting by Angeliki Koutantou in Athens and Christiaan Hetzner in Berlin; writing by David Stamp; editing by John Stonestreet)