Smiles emerge but risks linger

Greece is on target to meet its 2010 budget goals after months of unveiling austerity measures, raising hopes for a sooner-than-expected return to the debt market next year, according to Finance Minister Giorgos Papaconstantinou. Repeated value-added tax hikes, cuts to civil servants’ pay and pensions, along with a clampdown on state spending have resulted in the six-month budget deficit being reduced by 42 percent year-on-year to 11.5 percent of annual economic output. «We believe that we will get the 8.1 percent target for 2010, and maybe even exceed it,» the minister told reporters in Athens yesterday. In order to secure a 110-billion-euro funding plan from the International Monetary Fund and European Commission in May, the government has promised to slash the deficit this year to 8.1 percent of gross domestic product from 13.6 percent last year. Officials from the EU, IMF and European Central Bank will be in Athens at the end of July to conclude their first review of the country’s implementation of the austerity plan. Greece is scheduled to receive the next tranche of the rescue aid, 9 billion euros, at the end of August. The EU-IMF memorandum foresees revenue growth of 11.7 percent for the year but Papaconstantinou admits that income is falling short of the mark due to the downturn, posing a risk to the government’s goals. «VAT is obviously affected by economic activity. For June, we are not satisfied with VAT revenues,» he said. On the growth front, the minister was more upbeat, predicting a milder-than-expected recession than the 4 percent contraction foreseen in the memorandum this year. «Based on initial indications, the economy contracted by 3 percent in the second quarter of the year, versus 2.5 percent in the first quarter,» the finance minister said. After being shut out of capital markets earlier this year due to a series of credit downgrades and spiraling borrowing costs, Greece says it may be ready to return to investors in 2011. «We hope a return to the markets will take place in 2011… as opposed to at the start of 2012, as stated in the memorandum,» he said, adding that it will depend on prevailing conditions. The government plans to refinance about 4.5 billion euros in expiring treasury bills later this month by turning to fixed-income investors but the minister emphasized that this did not signal a return to the market. [email protected]

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