Bloomberg News

Venizelos Says Greek Economy May Shrink Up to 5.3% in 2011

August 22, 2011

(Updates with quote in third paragraph, adds budget targets in fourth.)

Aug. 22 (Bloomberg) -- Greece will stick to fiscal targets set out under two bailout plans even as the economy contracts this year by more than forecast, Finance Minister Evangelos Venizelos said.

The economy may shrink by between 4.5 percent and 5.3 percent in 2011, Venizelos told reporters in Athens today. That’s more than previous forecasts by the European Union and the International Monetary Fund of 3.8 percent to 3.9 percent.

“The deeper the recession, the more important it is to implement the decisions that have been taken,” Venizelos said. “It’s not serious to be talking about taking new measures without having implemented the ones decided on.”

Greece’s parliament passed a 76 billion-euro ($109 billion) package of budget cuts and state asset sales over five years in June to bring down a public debt burden forecast to peak at 161 percent of gross domestic product next year. The budget measures aim to reduce the deficit to 7.5 percent of GDP this year from 10.5 percent in 2010.

While the government lagged behind its targets in the first seven months, Greece can still close the gap before the end of the year, Venizelos said. A higher sales tax of 23 percent will be applied on restaurants and cafes.

Tourism Exemption

The government will examine an exemption for some businesses, such as all-inclusive tourism packages, to prevent the move weighing on growth, he said. Such an exemption would require equivalent revenue to be found elsewhere.

Venizelos said he’s optimistic the country will meet an end-September target for proceeds of 1.7 billion euros from state asset sales, a plan that will be applied “without deviation.”

European Union leaders agreed a 159 billion-euro aid package for Greece on July 21, the country’s second following a 110 billion-euro bailout in May 2010. State asset sales will make up part of the financing of that plan, while holders of Greek debt will contribute 50 billion euros.

Talks with bondholders on the debt exchange are “advanced”, Venizelos said, with the process expected to be wrapped up in the first two weeks of October.

--With assistance from Maria Petrakis and Natalie Weeks in Athens. Editors: Eddie Buckle, Andrew Atkinson

To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Christos Ziotis in Athens at cziotis@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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