The Greek government faces a tough round of talks this week with key international benefactors on its campaign to reduce the public deficit next year, with the agreed target for this year in apparent jeopardy.
Representatives from the EU, the European Central Bank (ECB) and the IMF are due in Athens today to assess the efforts so far by the Socialist government to stabilize public finances.
The government on Thursday is to present its budget for next year to parliament.
The EU-ECB-IMF team will decide at the end of its mission if a third installment of its 110 billion euro (US$150 billion) rescue package will be made available to Greece.
This installment is worth 9 billion euros.
The deal was approved in May to help Greece, weighed down by heavy debt, meet its obligations.
The country has already received 30 billion euros in exchange for measures aimed at curbing spending, notably through radical austerity measures and deep reforms of the economy.
The Greek economy shrank by 4.5 percent in the last 12 months, official data showed on Friday. GDP contracted by 1.1 percent in the third quarter from output in the second quarter, according to data from the ESA statistics agency said.
The agency attributed the contraction mainly to a fall in household consumption and investment.
The European statistics agency Eurostat is to release today its estimate of Greece’s public deficit for last year — but it is expected to come to 15 percent of GDP rather than an initially forecast 13.6 percent.
Greek Prime Minister George Papandreou acknowledged that because of this upward revision, the deficit target for this year of 8.1 percent agreed with the EU and IMF in exchange for their help could be surpassed.
Press reports have said the shortfall could even come to more than 9 percent.
Papandreou has insisted that the expected widening in this year’s deficit would be the result of an upward revision to last year’s figure and would not represent an absence of commitment on the part of the government.
However, that argument could fail to convince investigators from the EU, the ECB and the IMF.
While the government has managed to reduce spending, it has been less successful in boosting public revenues. The finance ministry has estimated the shortfall in the period between January and last month at 2 billion euros.
In addition, fears of instability that preceded local elections earlier this month prompted a resurgence in tension on the financial markets, where the yield — the interest rate the government has to pay to borrow — has risen.
In an interview published yesterday, Papandreou said he did not rule out asking for more time to pay back the 110 billion euro loan.
“The 2011 budget cannot ask any more from the middle class, from workers and retirees who have already contributed as much as they can to restoring financial stability,” Greek Minster for Infrastructure, Transport and Networks Dimitris Reppas said last week.
The Bank of Greece has said the three categories cited by Reppas had had their incomes reduced by 8 percent in response to tax hikes and cuts in public-sector salaries and pensions.
However, Reppas acknowledged that the government had to meet the demands of its benefactors if it wanted to negotiate a possible delay in repaying their loans.
For Lucas Papademos, a former deputy ECB governor, the task now is to step up the pace of privatizations — notably of the postal service and the railroad — and to reduce the weight of the state in the economy.
However, that approach would likely encounter public opposition. Unions have already warned against any privatization, with a general strike in the private sector called for Dec. 15.
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