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Victoria Mindova

In the period 2011-2013, the Greek economy has lost 18.7%, according to the latest version of the draft budget for next year. Despite the overburdening with new taxes, budget revenues decreased by 14.3% representing a drop of 24.2% of GDP.

Recent estimates by the government after consultations with the international lenders suggest that the Greek economy will shrink in 2013 by another 4.5% instead of by 3.8% as the original data of the Ministry of Finance showed at the beginning of the month. Recession this year is expected to reach 6.6%.

"Our strategic objective is to limit the growth of the huge foreign debt, ensuring its sustainability," the Ministry of Finance in Athens states. To achieve this goal, the government says it will limit spending, implement measures to restore positive GDP growth and perform dynamic privatization to attract new investment. In this situation, foreign debt is expected to increase to 189.1% of GDP.

The final version of the fiscal adjustment the country should apply next year under the Memorandum of financial support reaches a total of 10.9 billion euro. It is the result of the government's negotiations with the representatives of the lenders’ mission of the International Monetary Fund, the European Central Bank and the European Commission.

The fiscal adjustment programme includes in its expenditures a series of measures to cut costs, reaching a total of 8.9 billion euro. The government plans to save 385 million euro through the restructuring of the public administration. Next year the budgets of local government organizations will receive 50 million euro less and the government plans to save an additional 1.7 billion euro through cutting the salaries of public workers.

Reduction of pensions has proved to be the strongest card of the coalition government as it is expected to bring benefits of 5.4 billion euro. Social aids will be cut by 211 million euro and the consolidation of the sector of health services will save 491 million euro. The army will receive next year 306 euro million less and cuts in the education sector reach 123 million euro. The fiscal adjustment in state-owned companies will reach almost two billion euro and the government relies on the reduction of operating costs, reduction of state funding for them and on cutting salaries.

As far as the revenue is concerned, the government hopes to raise about two billion euro, mainly from putting a ceiling on the funding for pension funds by aligning revenue contributions with the social benefits paid. This year, revenues from indirect taxes are expected to fall by 6.8% compared to last year. VAT revenues will reach just over 13 billion euro and they register a 9.1% drop.
 
Total spending for 2013 is expected to reach 68.6 billion euro. The absolute value of budget deficit is expected to be about 11.2 billion euro. To cover its needs of funding, the Greek government plans to grant short-term loans amounting to 40 billion euro and the funds expected from the auxiliary mechanism are just over 26 billion euro.

Although Athens is ready with the fiscal adjustment programme and the budget is up for debate in Parliament, Brussels says the talks with lenders have not yet been completed. Macroeconomic data show that Greek debt remains unsustainable and the country will need more time and probably, additional aid. "We have not yet reached any particular decision, but there will most likely be an extension of the programme by one or two years," the representative of the finance ministers of Euro Working Group Thomas Vaizer told a German radio station, cited by in.gr. He denied that there were discussions about a new haircut of the Greek debt but stressed that the talks about the development of the economic programme for Greece have not been completed.