Bloomberg News

Greek Lawmakers Urged to Back Deeper Cuts Amid Mounting Risks

September 21, 2011

Sept. 21 (Bloomberg) -- Greek Finance Minister Evangelos Venizelos prodded lawmakers to endorse deeper budget cuts to keep emergency loans flowing and avoid default.

“The risk is that the system, the financial sector and the real economy stop functioning,” Venizelos told Parliament in Athens today before Prime Minister George Papandreou convenes his Cabinet to press for accelerating austerity measures.

The finance minister yesterday completed two rounds of discussions with representatives from the European Union and the International Monetary Fund, which made “good progress,” the EU said. The talks were intended to damp concerns that Greece may miss deficit-reduction targets required to receive rescue loans.

The EU comments suggest the next payment for Greece is likely to be released next month as Papandreou counters investor doubts that he can avoid default. Greek unions today are considering a 24-hour strike on Oct. 5. European leaders are squabbling over the terms of a July 21 agreement for a second Greek rescue and the prospect that they will be forced to channel more money to keep Greece in the currency union.

Greek subway, tram, train, bus and trolley workers will hold a 24-hour strike in Athens tomorrow to oppose government plans to reduce the public sector, according to a spokeswoman at the Greek Transit Workers Union press office.

Venizelos said extra cuts were needed to meet targets because of a deeper-than-expected recession and failures by the government to enact measures agreed upon last year as a condition of a 110 billion-euro ($151 billion) bailout.

Yield Climbs

Greek bonds fell today, sending the yield on two-year notes up 123 basis points to 65.4 percent at 11:56 a.m. in Athens.

While Greece says it has enough cash to cover its needs for October, any disbursement of new funds would likely only see it through to the end of the year.

Talks on the Greek aid payments resumed after IMF and EU monitors earlier this month suspended the review for a sixth tranche of loans following the discovery of an unexpected hole in the budget.

The austerity measures demanded in return for the emergency loans are deepening a three-year recession, making it harder for the government to meet the deficit goals laid out in its aid package. The IMF’s representative in Athens said Sept. 19 the economy will shrink 5.5 percent this year and another 2.5 percent next year, before growth resumes in 2013.

Preliminary numbers showed the 2011 deficit through August widened 22 percent to 18.9 billion euros, more than the target of 18.1 billion euros for the period. Greece pledged to reduce its deficit to about 7.5 percent of gross domestic product this year from 10.5 percent in 2010.

--With assistance from Paul Tugwell and Eleni Chrepa in Athens. Editors: James Hertling, Jeffrey Donovan

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net

To contact the editor responsible for this story: James Hertling or jhertling@bloomberg.net


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