Greece deficit cuts slowed by recession
- From: AP
- October 04, 2011
GREECE'S economy will remain in recession next year, with rising unemployment underscoring the difficulties the country faces in pulling its economy out of a debt crisis that has roiled markets around the world.
A day after it conceded it had missed its 2011 targets, Greece's debts are projected to reach 172.7 per cent of gross domestic product in 2012. The deficit next year will drop to 6.8 per cent, slightly above the 6.5 per cent originally agreed with international bailout creditors.The government said, however, that it will finally post a primary surplus - growth before interest payments on outstanding debts are taken into account - of 3.2 billion euros, or 1.5 per cent of GDP.
Greece relies on regular payouts from a 110 billion euro bailout from other eurozone countries and the International Monetary Fund, and was granted a second, 109 billion euro bailout in July, although the details of the latter remain to be worked out.
The troika had suspended its review in early September over talk of missed targets and delayed implementation of reforms, and the government announced new austerity measures in the past few weeks, including pension cuts and extra taxes on property.
The 2012 draft budget "is within the framework which has been agreed with the troika and is supported by the package of measures which have already been decided on and announced" and which will be voted on by the end of the month in parliament, Finance Minister Evangelos Venizelos said in a statement.
"The 2012 budget completes a dense and difficult effort of fiscal adjustment which, from a primary deficit of 24 billion euros in 2009, reaches a primary surplus of 3.2 billion euros in 2012," he said.
Next year's budget also covers a gap of 0.7 per cent of GDP in this year's budget, which the government attributes to a recession that will see the economy contract by 5.5 per cent this year and 2.5 per cent next year. Unemployment is expected to reach 16.4 per cent in 2012.
The deficit this year is expected to reach 8.5 per cent of GDP, higher than the original target of 7.8 per cent, the draft budget figures showed. Yet even this might increase by a further 0.5 per cent of GDP if there is slippage in the implementation of austerity measures, the government said.
The deficit figure for 2011 "obviously depends on the stance of Greek citizens and society in general regarding the country's critical situation", the draft said. "Unless there is the necessary response to this national collaborative effort, based on the data from the budget execution so far, the deficit could increase by 0.5 per cent of GDP."
Greeks have reacted with outrage to yet another round of austerity after already facing a year and a half of tax hikes and salary and pension cuts. Unions hold near daily demonstrations, and have declared a general strike for October 19 and a public servants' strike on Wednesday. Air traffic controllers are set to join Wednesday's strike, essentially grounding all flights.
Greece's Cabinet approved the draft budget on Sunday, with the finance ministry saying it wouldn't meet its initial deficit reduction targets for this year. The announcement prompted widespread selling in stock markets on Monday.
Part of the measures for next year are to place thousands of public sector employees on "reserve" - essentially suspending them on reduced pay. According to figures in the budget, this is expected to save about 200 million euros.
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