Greek Parliament Approves 2011 Budget, Deficit PlanNatalie Weeks and Marcus Bensasson
Greece’s parliament approved the government’s 2011 budget that aims to cut the fiscal deficit to about half of last year’s level, when it swelled to the largest in Europe and triggered a regional debt crisis.
The budget passed by a vote of 156 to 142 in the Athens-based parliament. Measures include 14 billion euros ($18.4 billion) in spending cuts and additional revenue aimed at cutting the shortfall to 7.4 percent of gross domestic product, from a projected 9.4 percent this year and meeting conditions of a 110 billion-euro bailout from the European Union and International Monetary Fund approved in May.
“I am not calling on you to vote for this because it leads us to the road to salvation, I call on you to vote for this because it is a punctual continuation of a plan we committed to, so we can respect the sacrifice Greek citizens made in 2010,” Finance Minister George Papaconstantinou told the country’s 300-member parliament.
Greece’s debt woes broadened into a euro-area crisis this year and governments from Lisbon to Rome have struggled to convince investors they can reduce debt and deficits enough to prevent future bailouts. The EU and IMF agreed on an 85 billion-euro aid package for Ireland last month, and borrowing costs in Portugal and Spain rose to euro-area records on concern they may be next.
Fitch Ratings, the only rating company that still considers Greek debt investment grade, followed Moody’s Investors Service and Standard & Poor’s this month in placing the country’s credit rating on review for a possible downgrade. Moody’s cited heightened concerns about whether the country will be able to reduce its debt to “sustainable levels.”
The extra yield investors demand to buy Greek 10-year bonds over German bunds rose 2 basis point to 908 basis points today. The premium reached a record 973 basis points on May 7.
Greece’s debt as a percentage of GDP stood at 127 percent in 2009, the highest in the 27-nation EU. The EU says the ratio will rise to 156 percent in 2012. Greece has said debt as a percentage of GDP will peak in 2013. The European Commission forecasts the economy will contract for a third year in 2011, shrinking 3 percent, before returning to growth in 2012.
Greece’s two biggest unions staged a 3-hour walkout yesterday and transport workers held their fourth 24-hour strike this month. About 2,000 workers marched to parliament before the budget vote to protests the additional austerity measures, police estimated.
Prime Minister George Papandreou and his socialist Pasok party came to power in October 2009 and soon revealed that the deficit was twice what the outgoing government had estimated. Papandreou who campaigned on pledges of higher spending and wage increases, has managed to maintain much of his popular support even as he implements the deepest austerity measures in decades, triggering regular protests by unions, Pasok’s voting base.
During the final budget debate, Papandreou said the government has had three goals since it was elected: to save the country from bankruptcy, stabilize the economy and proceed with necessary structural reforms. He said those who still talk about a Greek default are being “unfair” and that the memorandum has given it the needed stability to proceed with necessary changes and return to growth in 2012.
Papandreou was still the top pick to run the country, according to 42 percent of Greeks surveyed in a poll by Public Issue published in Kathimerini newspaper on Dec. 12. That compared with the 43.9 percent support he had in the 2009 elections. Sixty-six percent of respondents said the economic situation in Greece would worsen, the poll showed.
“Every year the budget vote is essentially a vote of confidence in the government,” Kostas Ntounas, an analyst at Athens-based National Securities SA, said in a telephone interview today. “This was expected and no particular surprise.”
The government has said it expects a 4 billion-euro shortfall in tax revenue this year even after raising taxes and beginning a crack-down on evasion. Greece has lowered pensions and wages to offset the lag, which is hurting efforts to cut a deficit that swelled to 15.4 percent of GDP in 2009, the largest of any euro-area state in the currency’s history.
Other measures to cut the deficit to 17 billion euros include increasing the lowest sales-tax rate to 13 percent from 11 percent, extending a levy on profitable firms and freezing pensions. To boost growth, Greece will reduce the tax on non-distributed corporate profits to 20 percent from 24 percent as well as give the key tourism industry a cut in value-added tax to 6.5 percent from 11 percent.
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