BUSINESS

Deficit contained to 9.1 pct in 2011

The reduction was almost exclusively due to the decline in public spending By Sotiris Nikas

Considerable reductions in public spending in 2010 and 2011 led to a drop in the deficit from 15.6 percent of the gross domestic product in 2009 to 9.1 percent last year, according to figures confirmed and announced on Monday by Eurostat and the Hellenic Statistical Authority (ELSTAT).

The contribution of spending cuts in the above figures is evident by the mere fact that the deficit declined by 16.6 billion euros from 2009 to 2011 after expenditures contracted by 16.9 billion euros in the same period.

In 2009 the deficit was calculated at 36.1 billion euros, dropping to 23.5 billion, or 10.3 percent of GDP in 2010, and to 19.5 billion euros last year. It therefore fared slightly better than the revised target for 2011 that had been 9.2 percent of GDP. However, the data show that public debt last year soared to 165.3 percent of GDP, or 355.6 billion euros, up from 145 percent in 2010 and 113 percent in 2008.

There are three main conclusions that can be drawn from the official budget figures. The first is that the only safe way to reduce the deficit is containing expenditure. In 2009 it had spiraled out of control, expanding by 6.7 billion euros from the year before to 124.6 billion euros. In 2010 it dropped to 114.1 billion and last year to 107.7 billion euros.

The second conclusion is that revenues were at a historic low in 2009, but recession drove them down further last year. State revenues amounted to 94.8 billion euros in 2008 and fell to 88.6 billion euros in 2009, an election year. Things improved a little in 2010 (90.2 billion euros) before the 7 percent shrinking of the economy in 2011 that brought revenues down to 88 billion euros last year.

Finally, in spite of the tough austerity measures whose performance came to between 45 and 50 billion euros from 2010 to date, the deficit was only reduced by 16.6 billion euros. This serves to explain the insistence of Greece?s creditors on reducing the expenditure of the state instead of bolstering revenues through additional taxation. This is set to be reflected in new measures to be announced in June.

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