Greek government submits 2011 budget to Parliament, aims to trim deficit to 7 pct of GDP

Monday, October 4, 2010

Greece aims to beat deficit target with new budget

ATHENS, Greece — Crisis-hit Greece on Monday vowed to slash next year’s budget deficit beyond demands made by the European Union and International Monetary Fund, but braced for a surge in unemployment and another year of recession.

A draft austerity budget for 2011 sees the deficit trimmed to 7 percent of gross domestic product — bettering the 7.6 percent target set by the terms of an international rescue package that saved it from defaulting on its debts.

“This draft is another big step to tidy up our public finances — to lay the foundations for solid growth which will generate investment and new jobs,” Finance Minister George Papaconstantinou said.

Greece found itself one step away from being unable to service its debts in May, saved just in time by a three-year euro110 billion ($151 billion) package of rescue loans from the IMF and other EU countries using the euro as their currency.

Under the terms of the rescue, Greece has to cut its deficit from 13.6 percent of GDP at the end of 2009 — the second highest in the eurozone — to 8.1 percent this year and 7.6 percent by the end of 2011. It has already imposed a harsh austerity program which has cut civil servants’ pay, trimmed pensions, increased taxes and imposed extra one-off tax sums on profitable businesses.

The measures have already led to a backlash from labor unions, which have carried out a series of strikes and protests across the country.

The 2011 budget promises no let-up in austerity, and according to the draft submitted to Parliament Monday, this will lead to the deficit narrowing to a projected 7.8 percent of GDP by the end of this year.

Greece will continue to be in recession next year, the document predicted, with the economy shrinking by 2.6 percent in 2011 after this year’s 4 percent contraction. The country’s economy will return to growth in 2012, it said.

Unemployment, however, is expected to rise significantly from this year’s projected 11.6 percent, reaching 14.5 percent next year and hitting a high of 15 percent in 2012 before dropping slightly the following year to 14.6 percent.

According to the text of the draft, the measures to be taken until 2013 “have nearly all been recorded” in those announced earlier this year.

While it said no new austerity measures would be imposed, it did however leave a window open for existing ones to be amended.

“The measures for 2011 are not additional or new — for some there will be corrective alternative solutions,” it said, adding that “some measures will be finalized in the final draft of the budget.” Officials said the final document is to be submitted in mid-November.

The crisis broke out late last year after Prime Minister George Papandreou’s Socialist government, elected a year ago Monday, dramatically revised the deficit upwards, eventually to four times the eurozone limit of 3 percent of GDP. It blamed the previous Conservative administration for manipulating statistics to make Greece’s finances appear in better shape than they were.

The revision led to a loss of confidence in the country’s ability to pay back its debts, and sent its borrowing costs skyrocketing, essentially locking Greece out of the international bond market.

Papaconstantinou has said he hopes the country will be able to return to the bond market sometime in 2011.

On Saturday, Chinese Premier Wen Jiabao — who started a weeklong tour of European countries in Athens — vowed to buy Greek bonds when the country does return to international markets.

Wen also said China planned to double its annual trade volume with Greece to $8 billion (euro5.83 billion) by 2015 and said Beijing hoped to help other fragile economies in the EU.


Associated Press writer Derek Gatopoulos in Athens contributed to this report.

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