September 1, 2011 / 9:41 PM / 7 years ago

Greece to miss 2011 deficit target: sources

ATHENS (Reuters) - Greece will miss its budget deficit target this year, the government and its international lenders said on Thursday, but they disagreed on how big the fiscal derailment will be and what is to blame.

The dispute is complicating negotiations before release of a further aid tranche under a 110 billion euro bailout agreed last year to stave off the debt-choked country’s bankruptcy.

The crisis has shaken the eurozone and global markets.

EU/IMF inspectors visiting Athens feel Greece is not pursuing reforms vigorously enough, while Greek officials say the main reason for the overshooting is a worse-than-expected, austerity-induced recession, sources said.

An official close to the inspectors, also known as the troika, said on Thursday the actual 2011 budget deficit will be at least 8.6 percent of GDP, compared to a target of 7.6 percent.

The official said inspectors found delays and shortcomings in implementing the bailout plan, which was beefed up in July by an EU agreement for a second bailout over 109 billion euros.

“The deficit is certainly at least one percentage point higher than the target,” the source told Reuters. “We are still counting ... 8.6 percent (of gross domestic product) is the lower range.”


The official, speaking on condition of anonymity, said the gap had three sources — the economy doing worse than expected, new measures not implemented as agreed and older measures yielding less than expected, in particular taxes.

The official said it was much too early to say if the 8 billion euro tranche of aid, to be disbursed later in September, was at risk.

The Greek government, by contrast, estimates the deficit overshoot will be smaller, at about 8.1 to 8.2 percent, mainly because of the deeper-than-expected recession.

“The troika estimates that the deficit will be at 8.5 to 8.6 percent in 2011,” a government official who declined to be named told Reuters. “They attribute this for about one-fourth to the recession, and say (the gap) is mainly due to delays in the implementation of the mid-term fiscal plan.”

Greek finance ministry experts expect the economy to contract by more than 4.5 percent this year, and possibly more than 5 percent, versus a previous EU/IMF projection of 3.9 percent.

Austerity policies of tax hikes and wage cuts have plunged Greece into its third consecutive year of recession, with economic contraction in 2011 headed to the deepest in almost 40 years.

Faced with the downturn, the troika is pushing Greece to accelerate privatizations, deregulation and deficit cuts, the Greek government official said.

“They are insisting that the Greek government must speed up privatizations,” he said. “They are also asking for a faster implementation of the labor market and pension fund reforms.”


Reforms to liberalize closed-shop professions such as taxi drivers and cut state spending have already led to a wave of strikes over the past months, often accompanied by violent clashes between demonstrators and police.

Greece’s Socialist government has lost its poll lead over the opposition conservatives, who oppose the austerity policy.

The inspectors also doubt Greece will manage to raise 1.7 billion euros in privatizations by the end of this month, a second key requirement for future aid payments.

“The government thinks it can achieve the targets but we have serious doubts,” the official close to the troika told Reuters. Greece has so far raised just 400 million euros from state asset sales.

Adding to the Greek government’s embarrassment, the chief of an independent parliamentary budget committee resigned late on Thursday after the country’s finance minister attacked the group for saying Greek debt was unsustainable.

Economist Stella-Savva Balfousia submitted her resignation to House Speaker Filippos Petsalnikos, top government and parliament officials told Reuters.

Balfousias’ committee had said on Wednesday that Greece’s debt dynamics were “out of control” and that the government was failing to restore public finances.

Finance Minister Evangelos Venizelos on Thursday attacked the independent committee, saying it lacked credibility and that he would take measures to upgrade and improve it.

The committee was appointed by the Finance Ministry in 2010 as part of efforts to increase the transparency of the country’s murky public finances.

Balfousia, who was not available to comment, was also a key player in a previous panel of experts that unearthed statistical irregularities and manipulations used to conceal the true state of Greece’s finances under the previous, conservative government.

Additional reporting and writing by Harry Papachristou; Editing by Dan Grebler

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