Monday, 1 October 2012

Greece Predicts Return to Targets (sort of)

Greece says it is slowly but surely balancing its budget, meeting one of the key demands of international creditors. The government says that, setting aside the cost of paying back loans, it will make 2.2 billion euro more from tax revenues next year than it will spend – a primary surplus, which would be Greece’s first in over a decade. 

The figures were revealed in a draft 2013 budget sent to parliament today.

Greece’s creditors had wanted it to do much better. Greece committed earlier this year to achieving a primary surplus of at least 3.6 billion euro in 2013. But the Greek economy is shrinking faster than anyone had forecast (as much as seven percent this year), meaning that tax revenues are dropping. And a political crisis over austerity has led to five administrations over two years, delaying reforms. (This year alone Greece held two, back-to-back elections, leaving the country without a popularly mandated government for two months).

The finance ministry says it can only achieve these results by cutting 7.3 billion euro in spending next year, and raising half a billion euro more in taxes. The lion’s share of those cuts would come from lowering pensions and cutting the public sector payroll. The austerity measures are part of a 13.5 billion euro package of measures to take effect over two years, which has yet to be announced. Like the budget, it must be approved by parliament.

Overall, the government says, Greece has managed to cut a staggering 49 billion euro in spending over three years, equal to more than a fifth of its economy. But the opposition radical left Syriza party says the country is still far too beholden to creditors. Greece spent 15 billion euro servicing loans last year. This year it must pay 10.5 billion euro. Debt management is so expensive that Greece has said it wants to extend the balanced budget deadline by two years to 2016 – a key electoral promise by the conservative-led government. 

Greece’s Fiscal Adjustment (in billions of euro)*

2011 Deficit
2012 Deficit
2013 Deficit
9% GDP
6.6% GDP
4.2% GDP
2011 Primary Deficit
2012 Primary Deficit
2013 Primary Surplus
2.1% GDP
1.4% GDP
1.1% GDP
*Source: Finance Ministry, 2013 draft budget

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