ATHENS (MNI) – Greece is setting an ambitious target to cut its
deficit to 7% of GDP in 2011, according to the draft budget released
Monday.

The target is lower than the 7.6% initially projected in the loan
agreement signed with the European Commission, the European Central Bank
(ECB) and the International Monetary Fund (IMF).

In the draft budget, it is mentioned that this years deficit will
drop to 7.8% versus the 8.1% initially estimated. However, this
reduction is mainly due to the upward revision in GDP as a result of
record-high inflation of 5.8%. The Greek Finance Ministry acknowledged
that the 2010 revenue growth target, which was set at 13.7%, will not be
met. Instead, revenues are expected at 8.7%.

The draft budget is expected to be revised within the course of
2010, based on the current years fiscal results. According to the
comments accompanying the draft budget, “2010 results will determine the
length of the fiscal effort, which has to be made in 2011. In addition,
the fiscal target achievement will depend on the course of the
macro-economic developments, especially the GDP growth rate.”

The Finance Ministry also admits that the fiscal data of the
general government “for 2010, as well as previous years, will be
affected by the incorporation of the states liability that has not yet
been finalized.”

The Ministry reminded that Eurostat, in a letter sent to Greek
authorities as well as to the Commission, stated that it would not
endorse the debt and deficit figures for 2009 and 2010 because it had
insufficient data regarding the state liabilities towards hospitals,
social security funds, indebted public utility companies and local
administrations.

Specific tax measures are not mentioned in the draft budget.
According to the Ministry, they will be specified in the final budget
plan, to be tabled in December. The draft budget announces new increases
of indirect taxation, which will bring revenues of 11.8%. In addition,
the draft announces further reduction in wages by 12.2%, pension
reductions by 4% and social security expenditure by 10.6%. It also says
that it expects revenues of E1 billion from emergency taxation of
profitable businesses and E1 billion from a further increase in VAT of
certain products and services, which were not specified.

Regarding inflation, the projection is that price growth will
average +4.6% for this year and slow to +2.2% in 2011. Turning to GDP
growth, the budget retains the early projections of a contraction of 4%
this year and -2.6% for 2011, while it estimates that the Greek economy
will return to growth from 2012 onwards.

Unemployment is expected to rise to 11.6% for 2010, with a
substantial increase for 2011 to 14.5%.

The draft sees revenues at 6.9% for next year, while expenditures
are expected to decline by 5.9%. However, the budget says that, as
spending was reduced by a stronger-than-expected 7.8% compared to the
target of 5.5%, the difference achieved will spill over to the 2011
budget.

Greece is expected to submit to a third round of inspections on
October 20, when officials from EMU/IMF will visit Athens to determine
whether Greece is eligible for the third loan installment, expected to
be released in December. Last May, Greece signed a loan agreement with
the Commission, the ECB and the IMF to reduce the deficit to 3% by 2014
in exchange for E110 billion.

–Angelika Papamiltiadou, a_papamiltiadou@hotmail.com

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