Greek Budget Deficit Narrows, Before EU Deadline on Fiscal Plan
March 12, 2010, 12:18 PM ESTBy Jeffrey Donovan
March 12 (Bloomberg) -- Greece’s budget deficit narrowed in the first two months of the year, the government said today before a European Commission deadline next week to show public finances are improving.
The January-February deficit dropped 77 percent to 903 million euros ($1.2 billion) compared with a year earlier, the Athens-based Finance Ministry said in a statement today. Ordinary revenue climbed 7.8 percent to 9.4 billion euros, less than the government’s target, while spending fell 9.6 percent to 8.9 billion euros.
Prime Minister George Papandreou’s government plans to cut spending and increase taxes to shave four percentage points from the deficit to 8.7 percent of output this year. The government faces a March 16 deadline to show the commission that progress is being made on its plans, which have prompted gains in Greek bonds and been praised by European Union officials.
The plans have “seemingly succeeded in convincing the European Commission and markets about the government’s commitment,” said Tullia Bucco, an economist at UniCredit Global Research in Milan. “Full and timely implementation of these measures” may help ease “concerns about Greece’s outstanding liquidity problems.”
Bailout Plan
While Greece last week managed to sell 5 billion euros in bonds, it still faces more than 20 billion euros in debt redemptions in April and May. EU finance ministers will discuss next week whether any Greek bailout should be funded by EU bonds guaranteed by euro-region governments, said three people briefed on preparations for meetings in Brussels on March 15 and 16.
Weighing on the government’s deficit plans is an economy that remains mired in a slump. Greek gross domestic product fell 0.8 percent in the fourth quarter, while the euro-area economy as a whole grew 0.1 percent.
The Finance Ministry said on March 10 that the economy may shrink more than 0.8 percent this year, compared with a 0.3 percent contraction forecast in the January deficit plan presented to the commission. Economists at Deutsche Bank yesterday forecast that the contraction could be “‘substantially” greater than anticipated by the government.
Bucco at Unicredit is similarly pessimistic, saying today in an e-mailed statement that “fiscal consolidation will weigh on economic activity” in 2010.
The economy “is likely to post a contraction at a pace similar to last year,” when it shrank 2 percent, she said.
--With assistance from Natalie Weeks and Paul Tugwell in Athens. Editors: Fergal O’Brien, Eddie Buckle
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To contact the reporter on this story: Jeffrey Donovan in Rome at jdonovan26@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
