("UPDATE: EU Threatens Greek Default If Austerity Plan Rejected," at 1458 GMT, misstated the currency of the Greek austerity package in the first paragraph. The correct version follows:)
By Matthew Dalton
Of DOW JONES NEWSWIRES
BRUSSELS (Dow Jones)--European Union officials Tuesday increased pressure on the Greek parliament to approve a EUR28 billion package of spending cuts and tax hikes, saying the country would face a default if legislators don't approve the austerity plan in a series of votes this week.
Greece will face a cash shortfall in the middle of July unless it receives a EUR12 billion rescue loan payment from the euro-zone governments and the International Monetary Fund, the fifth slice of EUR110 billion in rescue loans agreed upon last year. Euro-zone governments and the IMF have said they won't approve the payment unless the Greek parliament passes the legislation, proposed by Greek Prime Minister George Papandreou, in votes scheduled for Wednesday and Thursday.
Greek labor unions Tuesday started a 48-hour strike ahead of the votes to pressure Greek lawmakers to vote against the legislation, which would slash social welfare spending and impose a special crisis levy on all taxpayers.
Some press reports, citing unnamed officials, have said that the EU has a back-up plan to prevent a default if the parliament doesn't approve the new legislation. EU authorities in the past have pledged to prevent Greece from defaulting.
But EU economics commissioner Olli Rehn denied that a back-up plan is ready and threatened Greece with default if parliament doesn't approve the austerity plan.
"The only way to avoid immediate default is for parliament to endorse the revised economic program," Rehn said in a statement Tuesday. "To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default."
Joaquin Almunia, the EU's antitrust chief and its former economics commissioner, Tuesday warned of an "acute crisis" in the euro zone because of Greece's dire budget problems.
"The fiscal crisis in Greece is threatening to destabilize other euro-area economies and even the proper functioning of the European monetary union, with serious implications for the growth outlook in large parts of Europe and beyond," Almunia said in a speech in London.
Greece has billions of euros of debt maturing in the coming months: EUR4.4 billion in short-term treasury bills in July, another EUR2.48 billion in August and a EUR5.9 billion bond repayment on August 20.
The government should be able to roll over the Treasury bills, but it must also fund its budget deficit during that time. The deficit is expected to be EUR17.1 billion for all of 2011, according to the government's latest budget projections.
Rehn in his statement also urged a reform of the Greek tax system that would fight tax evasion, reduce rates and widen the tax base.
"The reform should aim to simplify the tax code, broaden the tax base and reduce tax rates in a fiscally neutral way," he said.
-By Matthew Dalton, Dow Jones Newswires; +32 (0)2 741 1487; matthew.dalton@dowjones.com
