THESSALONIKI, Greece — Greece’s cash-strapped government said Sunday it would impose a new property tax on top of existing austerity measures, to compensate for a revenue shortfall that is threatening to disrupt its vital international bailout program.
The government also decided, in a symbolic move aimed at a public angry at politicians, to dock a month’s pay from all elected officials - from the head of state to the country’s 325 mayors.
He said Greece is in a constant fight to ensure it can continue paying salaries and pensions, “which we guarantee,” and rejected talk of the country leaving the common European currency and returning to its old monetary unit, the drachma.
“For a country to leave - any country, I’m not necessarily talking about Greece - it will create a domino effect, a pressure on other countries, and will remain as a wound, if not the beginning of the breakup of the entire system,” he said.
Mr. Papandreou, whose party is trailing the main opposition conservatives in opinion polls, also ruled out early elections. He said he had discussed forming a coalition government with the conservatives, who he said “were not mature enough for it, and still are not.”
Debt-crippled Greece urgently needs to keep a program of cutbacks on track to secure the continued flow of international rescue loans - worth $302.6 billion - protecting it from a catastrophic bankruptcy.
In Germany, the government’s vice chancellor raised the possibility of letting Greece default should the “necessary instruments” be available for such a move. The statement by Philipp Roesler, who is also economy minister, comes amid an unsourced report in Der Spiegel weekly that Germany’s finance ministry has been working up two different scenarios to accommodate a Greek default. The ministry had no immediate comment on the report Sunday.
Mr. Roesler told the Monday edition of Germany’s Welt daily there should be “no limits to thinking” of possible scenarios of how to end the euro crisis. Germany has taken on a leading role in helping to bail out other members of the 17-nation eurozone, but is demanding changes to Europe’s fiscal policy be made in the long term.
Over the past 20 months, Greece’s Socialist government has cut pensions and salaries while raising taxes and retirement ages. But its efforts to cut back while reviving a fast-contracting economy amid record unemployment have faltered, sparking new market distress.