Greece on course to miss deficit target

Greece's deficit is forecast to hit 8.5% of GDP this year – missing the 7.6% target set by the EU and IMF

the Guardian,
Sunday 2 October 2011 19.55 BST




Greece is likely to miss the deficit targets agreed as part of July's bailout package, which would cast further doubt on its ability to steer safely through its current financial crisis and will send new tremors through global financial markets.


As the country's cabinet agreed a controversial plan to begin laying off 30,000 state workers, its latest budget plan indicated a deficit of 8.5% of GDP this year, missing the 7.6% target agreed with the European Union and the IMF. In 2012 the deficit is expected to fall to 6.8% of GDP – above the year's 6.5% target. A recession that has been worse than expected is behind much of the increase. According to Reuters, Greece expects its economy to contract by 5.5% this year and 2% next.


In a marathon cabinet meeting, the finance minister, Evangelos Venizelos, outlined new cuts for next year's budget, telling increasingly sceptical colleagues budget trimming was the only way of securing a further €8bn from the "troika" of lenders: the EU, European Central Bank and IMF.


The government hopes to deflect criticism of the public sector cuts by saying the 30,000 civil servants will be placed in a "labour reserve" on reduced pay from December. The measure will apply to employees aged 60 and over.


"It creates the lowest possible social cost and places on a reserve those who in comparison can more likely cope with the difficulties of this new situation," Venizelos said in a Sunday newspaper interview.


Amid signs of discord among European politicians, officials are working to avoid the country defaulting on its debts, which would hit the balance sheets of a host of European banks and cast doubt on the future of the single currency.


At a meeting of eurozone finance ministers on Monday, there will be demands for Greece to provide evidence it is on course to deliver further spending cuts and meet its tough fiscal targets, although any decisions will await the report of the troika inspectors.


There is a growing sense on financial markets that Greece will be forced to default on its debts in the face of the current political and social turmoil but EU officials insist that by the end of the month the country will win the sixth tranche of €8bn from its first bailout package.


Papandreou has assured the German chancellor, Angela Merkel, and French president, Nicolas Sarkozy, in recent days that his cabinet is "absolutely determined" to deliver on its commitments and save the country from bankruptcy.


Merkel and Sarkozy, who are due to meet again in a few days to accelerate implementation of the enhanced rescue fund, the European financial stability facility (EFSF), are equally determined to keep Greece within the euro.


But senior officials from the troika have reported from Athens that striking civil servants barring their way to the national statistics office have prevented them from delivering a definitive update on the Greek budgetary position.


Eurozone finance ministers, meanwhile, are increasingly alarmed at reports from Bratislava that the Slovaks will vote down the EFSF. At today's meeting in Luxembourg, the eurozone finance ministers will warn Slovakia that it has to deliver on its share of the enhanced bailout fund.


Leading Slovak opponents of the fund insisted in a series of German media interviews that they would not back down.


Richard Sulik, chairman of the Freedom and Solidarity party that is part of the ruling coalition government, said: "We will vote solidly against the EFSF." Opposition parties said they would also vote no.