Gov’t plans to trim massive deficit by some 8 bln euros

Economy headed for recession again

Finance Minister Giorgos Papaconstantinou (pictured) said yesterday Greece’s public debt is seen rising sharply next year to 120.8 percent of GDP, making it the highest in the eurozone. Economists welcomed what they described as a more realistic outlook for the economy, in comparison with forecasts prepared by the previous conservative government, but added that more action may be needed for the Finance Ministry to lower the deficit to below 10 percent of output next year.

The government will take steps in 2010 to trim its massive budget deficit by almost 8 billion euros, it said yesterday in a year the economy is expected to stay in recession.

Finance Minister Giorgos Papaconstantinou, who presented a draft copy of the 2010 budget to Parliament, said the deficit is expected to narrow to 9.4 percent of gross domestic product from 12.7 percent this year, a difference of 7.8 billion euros.

Steps to catch tax cheats and an increase in levies on tobacco products and alcoholic beverages will put an additional 3.7 billion euros in government coffers, while a cut in defense spending and fewer hospital debts will save the state 1.6 billion euros.

Prime Minister George Papandreou told Parliament the draft budget would aim at restoring the confidence of the European Union and investors in the Greek economy after the country posted budget deficits above the EU’s ceiling every year except one since joining the euro area in 2001.

On the growth front, the country’s 245-billion-euro economy is seen contracting at an annual rate of 0.3 percent, as opposed to this year’s negative growth rate of 1.5 percent.

This means that Greece is one of just three eurozone members expected to remain in recession next year, along with Ireland and Spain, according to the European Commission’s autumn forecasts, whice were released earlier this week.

Economists said the deficit reduction target was ambitious, while adding that the government’s targets appeared to be more realistic than in previous years.

“At first glance, the growth forecast looks more realistic than what we have come to expect from previous Greek budgets,” Diego Iscaro, an analyst at IHS Global Insight, told Reuters.