Greek Budget Predicts Economy Will Shrink for Sixth Year

Greece’s economy will contract for a sixth year in 2013 as the government prepares further cuts to pensions, wages and social benefits to meet the terms of its bailout packages.

Gross domestic product will shrink 3.8 percent next year after contracting 6.5 percent in 2012, according to the 2013 draft budget, e-mailed by the Finance Ministry in Athens and submitted to parliament today. This compares with a prediction in Greece’s March rescue agreement with the European Union and the International Monetary Fund that the economy would contract 4.8 percent this year before stabilizing in 2013.

The budget follows months of haggling between Prime Minister Antonis Samaras and the leaders of the two parties supporting his coalition government over 13.5 billion euros ($17.4 billion) of austerity measures for the next two years. The measures will help reduce the deficit to 4.2 percent of GDP in 2013 from 6.6 percent this year, the draft budget shows.

Agreement with the so-called troika of officials from the European Commission, the IMF and the European Central Bank on the measures -- comprising an extra 3 billion euros in revenue with spending cuts amounting to 10.5 billion euros -- is imperative to allow the release of 31 billion euros under the country’s bailouts. That payment is designed primarily to recapitalize the nation’s banks in a bid to boost liquidity in a cash-starved economy.

Primary Surplus

Without the additional measures the shortfall would have bounced back to 7.1 percent of GDP, the document today showed. Greece will show a primary surplus next year of 1.1 percent of GDP or 2.2 billion euros, from a deficit this year of 2.8 billion euros.

The latest measures, worth 7.8 billion euros, include raising the retirement age to 67 from 65, cuts to wages and pensions and benefits, as well as to health, defense and education spending.

The general government deficit for next year will narrow to 8 billion euros from 13.2 billion euros this year, according to the draft budget. General government debt will reach 179.3 percent of GDP next year, or 346 billion euros, from 169.5 percent this year, or 340.6 billion euros, the budget forecast.

More Time

The central government deficit, which excludes outlays by state-owned institutions and companies, will be 11.6 billion euros next year, down from 15.4 billion euros in 2012, the forecasts indicate. Ordinary government revenue is forecast at 51.8 billion euros in 2013 from 53.7 billion euros this year while ordinary government spending next year will be 56.6 billion euros.

Greece’s coalition government has requested more time to spread out the budget measures to 2016, which would require additional funding and the approval of the EU and the IMF. The IMF has indicated that any additional financing will have to come from Europe, where officials have told Samaras no discussion can be held on an extension until he honors pledges made for the country’s rescue package.

Unemployment will average 24.7 percent in 2013, up from 23.5 percent this year, and EU-harmonized inflation will average 0.7 percent next year, compared with 1.2 percent in 2012.

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