DIKO To Block New Austerity Measures - Papadopoulos

The Democratic Party (DIKO) will not approve a new package of economic austerity measures because it does not go far enough and does not deal with the key issue of pension reform, said an irate DIKO MP Nikolas Papadopoulos in statements to Sigma TV last night.

His comments followed a meeting between Finance Minister Kikis Kazamias and trade unions at the Presidential Palace. According to the head of the Worker's Confederation (SEK) Nikos Moiseos, the package they agreed includes a rise in VAT from 15% to 17% and a 3% contribution from all government workers' salaries for the next three years.

The measures have met with strong criticism from most political parties except AKEL because they do not touch pension reform. Civil servants receive two pensions, and only contribute 3.4% instead of the usual 6.8% to one of them. Unwilling to give up their perks, civil servant trade unions PASYDY, PEO and SEK have pressured the government to agree to postpone pension reform and instead, increase VAT. Left-wing President Christofias heads up a minority government whose strongest political support in the wake of the explosion at Mari naval base comes from the trade unions, which represent 70,000 government employees.

Parliament's Economic and Financial Committee is meeting today to discuss the package, and there is a vote set for August 25th.

There is growing insecurity about Cyprus' fiscal stability in the wake of downgrades by international ratings agencies and exposure to Greek debt. The EU has called for the government to implement immediate austerity measures and get the deficit under control, but the complicated political situation has hampered the progress of reforms.

Former government coalition members DIKO and EDEK left their partnership with communist party AKEL, citing differences over economic policy and the handling of the Cyprus problem. This has left a stark rift between the left-wing and the right-wing that is set to play out in the economic policy arena in the foreseeable future.

With Christofias in charge of the largely communist Council of Ministers and the opposition controlling Parliament, this legislation is the key test of which group has the real power.