Greek Opposition Slams Tax Rises

Samaras—Potential Contender for Prime Minister—Says Bailout Plan Is 'Failure

By ALKMAN GRANITSAS And MARCUS WALKER

ATHENS—The international plan to fix Greece's finances is failing and needs a rethink, the head of Greece's main opposition party said in an interview.

Instead of strangling the Greek economy with tax increases, Europe and the International Monetary Fund should let Greece cut taxes to jump-start growth, said Antonis Samaras, leader of the center-right New Democracy party and possibly the country's next prime minister.

The austerity program for Greece "is a failure," Mr. Samaras said in an interview with The Wall Street Journal, his first with international media since becoming Greece's opposition leader. Citing Greece's poor tax revenues amid a worsening recession, he said: "I think our lenders will have to change their policy. My question is why do we have to go further down the drain in the meantime?"

That view has isolated him internationally. But in Greece, Mr. Samaras's party is pulling ahead of the country's embattled Socialist government in opinion polls. Many political analysts in Athens say the government might not see out its full term to 2013, and some predict new elections as early as this autumn. That raises the prospect that Europe and the IMF might soon have to deal with Mr. Samaras, an economist known to be unbending and self-confident. A political clash over Greek budget policies could derail the country's bailout.

Mr. Samaras, a 60-year-old conservative and graduate of Harvard Business School, is coming under pressure from the euro zone and the Washington-based IMF to support the Greek government's austerity policies. The country's international creditors want a bipartisan consensus to underpin its effort to cut its deficit and avoid a default that could wreck investor confidence in the euro zone.

But Mr. Samaras instead warns that Greece will again fail to meet its budget targets under current policies. "In three months we'll be asking for more money," he warned.

Last week his party voted against a new, five-year, €28 billion ($41 billion) austerity plan in a hard-fought parliamentary vote. The measures, which Europe and the IMF have made a precondition for extending any fresh aid to Greece, passed with the support of the governing Socialist party.

But public opposition to cutbacks is mounting, and Greek business groups warn that the austerity plan—the latest in a string of spending cuts and tax increases in the past year—will deepen Greece's recession.

Greece's economy will shrink by between 3% and 4% this year, many economists say, after contracting by 4.5% in 2010. Unemployment has jumped to 16%—almost double the rate of two years ago. Business bankruptcies have soared and economic sentiment has slumped.

Mr. Samaras said he agrees with government plans to cut spending and sell €50 billion of state-owned assets. But he argued the latest tax increases will only compound Greece's economic and fiscal woes.

The solution, he said, is to slash corporate taxes rates to 15% from 24% now, while also lowering taxes on everything from personal income to tourist lodgings to fuel.

Sharply lower tax rates, Mr. Samaras said, would produce a "creative shock" that would stimulate business investment and consumer demand, while also reducing incentives for tax evasion, a chronic problem in Greece.

"Part of economics is psychology, and you need a demonstration effect to show investors that this is an economy that you can invest in—whereas right now money is being taken out of the economy and supply is being killed," he said.

The resulting growth would close Greece's budget deficit faster than the grim austerity plan demanded by Greece's international creditors, he argued.

Mr. Samaras's problem is that few outside Greece buy his theory.

The so-called troika of European Union, IMF and European Central Bank officials that are supervising Greece's reforms say Mr. Samaras's proposed tax cuts would make the country's budget shortfall worse. In their latest report on Greece, they described the New Democracy program as "unrealistic and incompatible with the overall objectives of the adjustment program."

Even Mr. Samaras's peers among Europe's conservative parties are calling on him to sign on to the EU-IMF program. At a gathering of center-right leaders in Brussels late last month, German Chancellor Angela Merkel and French President Nicolas Sarkozy were among those pressing Mr. Samaras to get on board.

Mr. Samaras stood his ground, by his own and other participants' accounts. He said he told the German chancellor that his program offers the only solution for Greece, and by extension for the stability of the euro zone.

"I told Merkel: Look, if your plan works, then I am wrong," Mr. Samaras said. "But if it doesn't work, then you are going to need a new plan and I'm the one who can bring that about."