New crisis-adjusted draft budget

Gov’t revises lower 2009 growth estimates; lawmakers pass watered-down 28-billion-euro bank rescue plan

The Finance Ministry is expected to submit to Parliament today the final draft of the 2009 budget, which lowers next year’s growth estimate in an attempt to take into account the impact of the global financial crisis.

The conservative government has been forced to redraft the budget plan that it prepared in early October due to the fast-changing conditions of the global economy.

Sources said National Economy and Finance Minister Giorgos Alogoskoufis will adopt views similar to those included in the European Commissions’s fall report.

Gross domestic product (GDP) is now seen as expanding by around 2.7 percent versus the previous 3 percent estimate, according to sources.

Estimated interest payments on government debt are also seen as being revised higher in next year’s plan, as risk-averse investors price higher Greek bonds, viewing them as peripheral eurozone assets.

Meanwhile, lawmakers gave final approval to a 28-billion-euro bank support plan yesterday aimed at ensuring access to loans for small and medium-sized businesses, which make up over half of its slowing economy.

The conservative government watered down key conditions of its initial plan in the face of reticence from banks. It lowered commissions and dropped its insistence that lenders must give the state shares in order to participate in any part of the deal. Economists have described the plan as a political bid to bolster Greece’s economy rather than a real effort to bail out banks, which have had little exposure to toxic assets and have suffered no write-downs. So far state-controlled ATEbank and the country’s third-largest lender Alpha Bank have said they will sign up for the deal.

Under the terms of the deal, only undercapitalized banks needing to take part in a 5-billion-euro capital injection will have to issue the government with preferred shares, paying a 10 percent dividend. Banks wishing to use 15 billion euros in government debt guarantees will have to accept a state representative on their boards with veto power over dividend payments and executive pay.