Greece needs euro 2.5 bn extra spending cuts over two years

Last Updated: Sun, Aug 19, 2012 20:14 hrs

Greece will likely need to cut an additional euro 2.5 billion in spending over the next two years to meet demands made by its international lenders in return for financial aid, Germany’s Der Spiegel magazine reported on Saturday.

Citing an interim report by the troika of European Commission, European Central Bank and International Monetary Fund, Der Spiegel said Greece would likely need euro 14 billion over the next two years to get its deficit below 3 per cent by the end of 2014, up from a previously expected euro 11.5 billion.

The country’s budget deficit stood at 9.3 per cent in 2011. The increased financing gap was due to setbacks to privatisation plans and as the economy, in its fifth year of recession, was faring worse than expected, the magazine said.

International creditors, who have bailed out Greece twice, have set those targets in return for financial aid.

The troika representatives wrote the report after their last trip to Athens and would determine the exact amount needed when they next visit Greece in early September, the magazine reported.

“The delegation also criticized in its interim report that Prime Minister Antonis Samaras’ government had already been unable to explain how the savings of euro 11.5 billion should be reached,” Der Spiegel reported. “Roughly a third is uncovered.”

A Greek government official said Greece had inched closer to securing the cuts, agreeing euro 10.8 billion of the euro 11.5 billion worth of cuts demanded.

The official did not elaborate on where the cuts would come from and said talks to finalise the package would continue on Monday.

Samaras will meet next week with the leaders of France and Germany — he will see Chancellor Angela Merkel in Berlin on Friday — as well as Jean Claude Juncker, head of the Eurogroup of finance ministers. He is expected to lobby for a two-year extension to reduce the country’s budget deficit.

According to a Greek newspaper, finance ministry officials have calculated that the economy would recover faster and its debt be more sustainable if Greece were given two more years, but leaders in the lender states are unlikely to give in easily.

However, there is already a clause in Greece’s euro 130-billion- ($160.7 billion) bailout deal that says the deficit adjustment period could be extended if its recession is deeper than expected.

Greece’s economy contracted at an annual rate of 6.35 per cent in the first half of this year, compared with an European Union / International Monetary Fund forecast for a 4.7 per cent contraction for the full year. Samaras said last month that the economy would shrink by more than 7 per cent in 2012.

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