Greece will likely miss its target for increasing government revenue this year and plans to sell debt to Greeks living outside the country, as it tries to cut the European Union’s second-biggest budget deficit, Finance Minister George Papaconstantinou said.
Greece imposed a series of austerity measures this year, including wage cuts for public workers and higher sales tax to qualify for a 110 billion-euro ($142 billion) EU-led rescue package. The government managed to cut the deficit by more than 30 percent in the first eight months, though revenue only gained 3.3 percent, shy of the 13.7 percent target for the plan.
“We are a little bit behind in terms of revenue collection, but that is more than compensated by the fact that expenditures have been declining faster,” Papaconstantinou said in an interview today on Bloomberg Television’s “The Pulse” with Andrea Catherwood. “We may have some shortfall in revenue because the country is in a recession.”
Papaconstantinou is leading a two-day roadshow to London, Paris and Frankfurt with officials from the EU and International Monetary Fund, seeking to convince investors and political leaders that the country is committed to taming the deficit and making its economy more competitive and efficient. Greece has been virtually shut out of the bond market since accepting the EU-IMF bailout after a surge in its yields made the cost of selling long-term debt prohibitive.
“So far Greece has cut spending more than planned; I think 4 to 5 percent more than was targeted,” Steven Major, global head of fixed-income research at HSBC Holdings Plc, said in an interview on Bloomberg Television’s “Global Connection.” “That’s good news and it allows for some slippage on the revenue side. But the market knows that it still has a long way to go.”
Papaconstantinou said the government plans to try to sell debt to Greeks abroad, saying there were as many living overseas as in the country itself.
“A diaspora bond which will tap the market and the willingness of Greeks abroad to contribute to this effort is something we want to do,” he said. “We’ll be rolling something like this out sometime in 2011.”
Greece yesterday sold 1.17 billion euros ($1.5 billion) of six-month Treasury bills as it initiated monthly auctions to maintain contact with the bond market. The six-month bills were priced to yield 4.82 percent. That’s less than the 5 percent that the EU is charging on the emergency loans, though more than 10 times what Germany pays for similar securities.
The premium that investors demand to hold Greek 10-year government bonds instead of benchmark German bunds was little changed at 900 basis points at 12 p.m. in London. The spread reached a euro-era, intraday high of 973 basis points on May 7.
The EU and IMF this week delivered 9 billion euros of the emergency loans to Greece, the second installment of the aid package. They praised Greece’s efforts to cut spending and overhaul its pension system, while signaling concern about the slow growth in revenue. The country was on track to meet and possibly exceed its goal of cutting the budget shortfall to 8.1 percent of gross domestic product this year, from 13.6 percent last year, the IMF said in a report yesterday.
Revenue growth has been hurt by the austerity measures that have deepened a recession and boosted unemployment. The economy will likely contract 4 percent this year, the IMF said. That compares with the 1.7 percent expansion that the European Commission forecast this week for euro region this year.
The austerity measures and economic overhaul eventually will provide a “positive shock” to the economy, boosting growth rates and allowing Greece to finance its debt without having to seek an extension of the three years of EU-IMF aid, Papaconstantinou said.