Greece today announced an austerity budget aiming to slash its bulging deficit to 7.4% of output next year, exceeding targets set under the terms of a bail-out loan with the EU and IMF.
The Greek finance ministry said the savings unveiled in the 2011 budget are worth €14.3 billion, compared to €8.2 billion agreed with the European Union and the International Monetary Fund this year.
Additional deficit-cutting measures were added after the deficit figure for 2009 - the starting point of Greece's arduous austerity effort - was revised upwards earlier this week.
'The aim for the 2011 deficit is €17 billion or 7.4% of gross domestic product, meaning a €5 billion reduction over 2010,' the ministry said in a statement. A fiscal effort of 'over €14 billion' will be enforced to meet this goal through existing and new measures, the ministry added.
The plan includes cuts in the badly mismanaged Greek health sector and public companies, a two-point increase in the lower VAT rate from 11% to 13%, a tax evasion crackdown, lower defence spending and a nominal pension freeze, the ministry said.
VAT has already been raised twice in Greece this year as the government labours to implement a painful austerity programme under close watch by the European Union and the International Monetary Fund, which rescued the debt-hit country from bankruptcy with a massive loan this year.
Greek civil servants, who often had higher salaries than the private sector and guaranteed job security, have already had to accept pay cuts of up to 60%, according to the government.
The austerity drive has plunged the country into a deep recession. The economy will contract by 4.2% this year and by a further 3% in 2011, higher than an original forecast of 2.6%, the finance ministry said.
Under the €110 billion EU-IMF rescue in May, Greece agreed that its public deficit would be reduced to 7.6% of GDP in 2011, aiming to eventually reach the EU limit of 3%.
But the additional measures became necessary after the 2009 public deficit was revised upwards this week to 15.4% of GDP from the previous 13.6% by Eurostat, the EU statistics agency. The resulting effect is that the 2010 shortfall will now be 9.4% of output, above the 8.1% target.
An audit of Greek finances by the EU, the IMF and the European Central Bank is currently ongoing and is expected to be completed on Monday.
Provided the auditors give the green light, EU finance ministers would in turn approve or not giving the funds to Athens in mid-December, with the transfer of funds coming in January. The IMF is expected to disburse its €2.5 billion share of the €9 billion in December.
Greece was forced to seek help in April when a scare over its economy turned money markets against it, forcing Athens to pay ever higher rates of return when it sought fresh financing to meet its massive debt and deficit obligations.
As rates hit unsustainable levels, Greece's problems set off a debt crisis that for a time seemed to threaten the whole euro zone project, making a bail-out imperative.
