Greece Wants 1% Deficit By 2015
By Alkman Granitsas
Of Dow Jones Newswires
ATHENS (Dow Jones)--Greece wants to cut its budget deficit to 1% of gross domestic product by 2015, Finance Minister George Papaconstantinou said Thursday. However, he added that the nation's ability to emerge from its economic crisis will depend on decisions taken by European leaders next month.
Speaking at a news conference, Papaconstantinou said that by the middle of May, the government will announce deficit-busting measures equal to about 8% of GDP, or EUR19.5 billion, to be implemented in the years 2012-14.
He said that two thirds of that total will come from spending cuts, and one third from tax collections.
"We have set as a target to reduce the deficit to 1% of GDP, about EUR3 billion, by 2015," Papaconstantinou said.
Under the terms of a EUR110 billion bailout reached with the European Union and the International Monetary Fund last May, Greece has promised to slash its deficit to 3% of GDP by 2014, down from a record 15.4% in 2009.
Since then, Greece has cut its deficit by six percentage points of GDP, to about 9.4% last year, and is aiming to narrow it further to 7.4% this year.
Papaconstantinou said that those medium term measures will focus on spending cuts in areas such as healthcare spending and public administration, as well further reforms to Greece's tax system.
However, he gave no further details and also said that not all of the measures will be new--some have already been incorporated into the government's ongoing austerity program.
His remarks come a month before a crucial EU summit on March 24-25, at which EU leaders will decide on a comprehensive package of measures to address Europe's debt crisis.
Among the issues being considered is extending the repayment period for Greece to pay back its EUR110 billion loan; a lower interest rate on that loan; as well as a mooted plan to help Greece buy back tens of billions of euros in outstanding debt as a means to cut the country's staggering debt burden.
Greece's public debt is expected to peak at 158% of GDP by 2013 before slowly trending lower. Many investors fear that, despite the ongoing austerity measures, Greece will not be able to repay all of its outstanding loans, something that has kept market yields on Greek government bonds at relatively high levels.
"We have said we will fulfill all our commitments in the program," Papaconstantinou said. "At the same time, we have to say clearly that the path of the economy depends to a large extent, on the decisions that are taken within the framework of the ongoing European Union discussions."
Recent data show that Greece's recession has deepened, with the economy contracting a worse-than-expected 4.5% last year, with few signs of an upturn in sight. Joblessness has risen to 13.9%, while youth unemployment is a staggering 35.6%. Greece's retailers association, ESEE, estimates that 120,000 small businesses will declare bankruptcy this year.
"We all know that the ability of the country to exit more quickly from the crisis and, to a large extent, its ability to manage its debt, depends on those decisions," Papaconstantinou said. "But we still have a long road before us before final decisions are reached."