Have you heard about the problems in Greece? Too many entitlements and too much government spending have pushed that country to the brink of financial disaster. To deal with the disaster, they’re going to hike taxes. Prime Minister George Papindreou has to propose cuts in spending and increases in taxes so he can grovel to the EU for a bailout.
AP: Government officials said the measures would include cuts in civil servant’s annual pay through reducing their Easter, Christmas and vacation bonuses by 30 percent each, and a 2 percentage point increase in sales tax to bring it to 21 percent from the current 19 percent.
In a dramatic speech to his Socialist party deputies in Parliament Tuesday night, Papandreou said his country was in a “state of war” and was fighting for its national survival.
The new austerity package comes after European Union officials bluntly told Athens to make deeper spending cuts. Ratings agencies have also warned of more damaging downgrades if Greece is unable to rein in its debt.
I wish them luck, but it’s doubtful the increase in taxes will raise more revenue. People will just stop spending as much money. Can you imagine a 21% tax on everything you buy? Wouldn’t you just buy less stuff? As for the cuts in spending, those aren’t going to happen without a big fight by the unions.
Greeks have their annual salaries split into 14 monthly installments, with the last two considered holiday bonuses. Unions have said abolishing the 14th salary would be tantamount to a “declaration of war.”
“It is a very difficult day for us … These cuts will take us to the brink,” said Panayiotis Vavouyios, the head of the retired civil servants’ association. “Brussels is demanding cuts and the government is doing nothing to stop them. To make poor pensioners pay for this crisis is a disgrace.”
This is all so predictable. How long will it be until we’re in the same situation as Greece?
JP Morgan rates California as a worse risk then Greece.
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