By COSTAS PARIS And ALKMAN GRANITSAS, Wall Street Journal
ATHENS—Greece is set to announce a new series of austerity measures next week as it scrambles to collect up to €4.5 billion ($6.15 billion) needed to meet its 2011 budget-deficit goal, two senior government officials said Friday.
The extra measures will mostly focus on spending cuts in the public sector, but may also include more indirect taxes, the officials said.
In May, Greece narrowly avoided default with the help of a €110 billion bailout from the International Monetary Fund and the European Union. Under the terms of that loan program, Greece must cut its budget deficit this year by 5.5% of gross domestic product and was aiming for a deficit of 8.1% of GDP.
But one of the officials said the country’s 2010 deficit is expected to reach “9.3% or a bit more” due to lagging tax collections and an expected upward revision in the country’s deficit the previous year.
On Monday, a delegation of IMF, EU and European Central Bank officials will arrive in Athens to judge Greece’s eligibility to receive a third disbursement from the loan. In 2011, Greece must narrow its budget gap further, to 7.6% of GDP.
“Tax evasion remains a significant problem. In absolute numbers we are minus €2 billion in reaching this year’s forecast, so the budget deficit will be revised and we will have to push harder next year to come close to the [7.6% budget] deficit goal,” the official said.
It also appears that Greece’s 2009 budget deficit went wildly off course and is now estimated at “above 15%”, one of the officials said, up from a current 13.8% estimate. On Monday, Eurostat, the EU’s statistics agency, will release its revised estimates for Greece’s 2009 budget deficit.
The new austerity measures, which haven’t been finalized yet, will be incorporated in the 2011 budget, which the Socialist government will present to parliament Thursday. A second official said final decisions on specific cuts will be reached after high level talks between the finance ministry and the EU-IMF-ECB delegation next week. “There will be major cost cutting in public-sector companies. Overtime and bonuses will be capped. Ministry budgets will be slashed, public entities will merge and those that serve no real purpose will close down,” the second official said.
He also said spending for state hospitals and municipalities will be slashed further along with the public-investment budget. Some products will move to a higher value-added tax bracket in the course of next year, while tobacco products and alcoholic beverages could be taxed further. There is also talk of cutting unemployment benefits.
The official said specific figures are still being worked out, but when asked if it was realistic to expect that Greece will be able to collect the €4.5 billion needed from the extra measures he said, “Realistically, it will be very difficult in the course of one year.”
He said he expects negotiations with the EU and the IMF may provide “some breathing space,” and one thought is that half of the additional measures required are implemented in 2011, and the other half in 2012. He added that the IMF has indicated that it is “considering such an idea” but didn’t say whether it was the government or the IMF that brought up the proposal or whether the EU would go along with it.
Greece has already enacted tough austerity measures since late 2009, including steep cuts in public-sector wages and in retirement benefits, as well as higher taxes on everything from basic food stuffs to real estate.
However, those measures have sparked labor unrest and stoked widespread voter disenchantment, as reflected in last Sunday’s local elections which was marked by record-high voter abstentions and flagging support for the ruling Socialists.
Worse, the measures have also badly hit the Greek economy which is expected to shrink by 4% this year, while unemployment has jumped to 12.2% and business bankruptcies have soared.
