Ambitious budget sees deficit cut, softer growth

Minister reiterates backing of deposits

Finance Minister Giorgos Alogoskoufis (left) hands over to Parliament Speaker Dimitris Sioufas yesterday the 2009 draft budget which sees economic growth slowing next year to 3 percent.

The government yesterday unveiled its 2009 budget plan, which predicts economic growth slowing to 3 percent and the budget deficit falling to 1.8 percent.

National Economy and Finance Minister Giorgos Alogoskoufis also said Greece’s banking system was “completely safe and solvent,” and he reiterated a pledge to fully guarantee all bank deposits in the country – without passing new legislation.

“The government has made the commitment to guarantee citizens’ deposits,” Alogoskoufis said. “This is an explicit and clear political commitment. Whenever it has to be activated, it will be activated.”

The draft budget predicts gross domestic product (GDP) will expand by 3 percent next year, down from a targeted 3.4 percent expansion rate for 2008.

“Obviously, the 2009 draft budget takes into account the effects of the unprecedented global credit crisis, the international growth in inflation, global economic slowdown and our country’s eurozone obligations, “ Alogoskoufis said.

The minister said the 2007 deficit was 3.4 percent of GDP, well over the EU limit of 3 percent, and not 2.7 percent as originally reported. He also unveiled yet another ambitious deficit target of 1.8 percent of GDP in 2009, and revised this year’s budget deficit to 2.3 percent from 1.6 percent of GDP.

Greece has struggled to boost revenue collection and cap spending. The government plans to collect revenues next year of 64.8 billion euros. The 12 percent increase from this year is the largest since 1998. Total spending will increase 8.2 percent this year and 8.6 percent next year, to 65.5 billion euros.

In September, lawmakers adopted a series of new taxes on dividends and stock options and abolished a tax-free threshold for self-employed workers. The measures have hurt the ruling New Democracy party’s popularity, with opinion polls showing the opposition Socialists ahead for the first time in eight years.

Higher interest rates will boost Greece’s debt-servicing bill by 800 million euros, to 11.3 billion euros this year. Inflation next year is predicted to be 3.2 percent, according to the government’s 2009 spending plan submitted to Parliament yesterday. Analysts said budget targets were optimistic because they assumed Greece will remain largely immune to the international market turmoil, thanks to higher GDP growth than its eurozone peers.