Greek rate of deficit reduction slows, but still on course to meet end-year targets

By Elena Becatoros, AP
Friday, September 10, 2010

Greek rate of deficit reduction slows

ATHENS, Greece — The rate at which Greece is narrowing its budget deficit slowed slightly over the summer, although the country is still on track to meet the targets laid out in an agreement with the International Monetary Fund and EU, finance ministry figures showed Friday.

According to preliminary data issued by the ministry, the budget deficit from January to August slowed to 32.2 percent compared to last year, from the 39.7 percent reduction in the January-July period and 45.4 percent in the first six months of the year.

However, the overall performance is better than the 26.5 percent budget deficit reduction target laid out in the EU-IMF program for the first eight months of the year, and the country is still on target to produce an overall budget deficit cut of 39.5 percent for the year.

“The deficit reduction has temporarily slowed down in the past two months due to the accumulation of interest payments in July and August — which make up 40 percent of yearly interest payments — but also because of a lag in revenues,” the ministry said in a statement.

Although covered by a better-than-expected performance in spending cuts, the severe lag in revenue has caused concern and the government has been examining ways to boost income. Net revenue increased by 3.3 percent in the January to August period compared to the same timeframe last year, way short of a targeted 13.7 percent annual increase. Spending, however, was down 7.7 percent, better than the targeted 5.5 percent annual decline.

Weighed down by a high deficit and public debt, Greece narrowly avoided bankruptcy in May after its cost of borrowing rocketed. The government has pledged to slash the deficit from last year’s 13.6 percent of gross domestic product to 8.1 percent by the end of the year.

In return for vital loans from other European Union countries using the euro currency and the IMF, the center-left government implemented painful austerity measures, cutting salaries and pensions and hiking indirect taxation.

The measures have led to a backlash from labor unions, who have announced a series of demonstrations over the weekend in the northern city of Thessaloniki, where Prime Minister George Papandreou is to give his annual state of the economy speech Saturday on the sidelines of a trade fair.

Papandreou on Friday led his first Cabinet meeting since reshuffling his ministers earlier this week, when he changed several key positions but left the leadership of the crucial Finance Ministry unchanged, with George Papaconstantinou at the helm.

Minor scuffles broke out between riot police and protesting firefighters near the venue of the Cabinet meeting in Thessaloniki port Friday morning, while railway workers and left-wing unionists also held demonstrations. More demonstrations are planned for Saturday, and authorities said 4,500 police have been deployed.

Greece’s finances remain under intense EU and IMF scrutiny, and successful implementation of the cutbacks and structural reforms remain a condition for continued release of the loans, set to reach a total €110 billion ($144.5 billion) over the next three years.

The country is due to receive its second installment of loans next week.

Separately, Greece’s debt management agency said Friday it will auction €900 million worth of 26-week treasury bills next Tuesday. The sale has a settlement date of Sept. 17 and will be the first of a previously announced regular monthly short-term debt issue that replaces quarterly sales.

However, the interest rates demanded on the market for longer-term 10-year government bonds remains prohibitively high, and Athens can only tap the markets for small amounts and shorter-term loans.

Passing an important market test last month, Greece raised €1.95 billion through 13-week treasury bills. The sale was oversubscribed 3.85 times at a yield of 4.05 percent. Greece has said it hopes to start issuing long-term debt again in 2011.

Greece’s unemployment rate fell slightly to 11.6 percent in June from 12 percent in May, but was still well above the 8.6 percent seen a year ago, before the country was hit by a severe debt crisis, the country’s statistics office said Friday.

More than 582,000 Greeks were out of a job in June, compared to more than 427,000 in the same month last year, the agency’s data showed.


Associated Press writer Costas Kantouris in Thessaloniki contributed.

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