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Greek budget cuts spark protests

As Standard & Poor's downgrades Greece's debt, Prime Minister Papandeou vows to make painful cuts.

On Thursday, thousands of Greeks took the streets to protest the measures in a show of force by one of the country’s most militant unions, the Communist-led PAME. The country’s largest unions have adopted a wait-and-see attitude, but warn that social benefits and salaries must be protected.

The global economic crisis may have pushed Greece’s economy into the spotlight, but few of the problems are new. Indeed, while Papandreou swept to power only a few months ago on a wave of popular anger over corruption in the previous government, his party and family bear more than a little blame for the country’s deeply-entrenched economic problems. His grandfather was prime minister three times and his father twice.

Papandreou and his largely British- and American-educated economic team have vowed to tackle difficult problems such as widespread corruption and the bloated civil service. But they must convince an electorate resistant to change and largely unrepentant about tax evasion.
Many Greeks doubt government claims that coffers are empty and believe the state’s money is being stolen by corrupt officials and greedy bankers.

“The bankers took all the money,” said Joanna Karatziou, a temporary government worker, echoing a frequent refrain here.

To allay those fears, Papandreaou has promised a 90 percent tax on banker bonuses. But the government is also counting heavily on widening the tax base to ease its deficit crisis.

On Friday, Finance Minister George Papaconstantinou said the government would prepare a new tax law aimed largely at tackling tax evasion. He said that only 3,000 Greeks — in a country of 10 million — reported having incomes greater than 200,000 euros ($287,000). More than 5 million Greeks claimed incomes lower than 12,000 euros.

“Tax reform will be key,” said Papaconstantinou at a press conference.

But despite government attempts to reassure skittish international investors, there remains widespread skepticism that the proposed measures are tough enough.

Announcing its downgrade Wednesday, Standard & Poor’s said it was not convinced Greece’s plan to reduce its deficit went far enough and said it feared efforts to bring the budget into line would face fierce domestic resistance.