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The Greek economy will shrink by another 3.8% in 2013

01 October 2012 / 20:10:16  GRReporter
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Victoria Mindova

Recession in Greece will continue next year too. Its value is expected to slowly decline in 2013 and the economy will shrink by 3.8 % of GDP. 2012, on the other hand, is expected to end with a recession of 6.5% of GDP. Following the budget cuts introduced this year the deficit will be 6.6% of GDP compared with 9% of GDP at the end of 2011. The absolute value of the deficit for this year is 13.3 billion euro. At the end of last year, the difference between government revenue and expenditure was 19.4 billion euro.

Despite the continued economic downturn, the country will register a primary surplus of 2.2 billion euro or 1.1% of GDP in 2013. It was planned to reach 2.7% of GDP at the beginning of the programme, but changes have been imposed due to the worsening of this year’s recession.

The Ministry of Finance presented the data, which had been taken from the draft budget for 2013, which the competent Minister Yiannis Stournaras will submit in Parliament for a first reading this week. The draft budget will contain the fiscal adjustment measures required by Greece's lenders in order for the payment of the financial aid to the troubled country to continue. The two-year recovery plan contains reforms that will bring budget benefits amounting to 14.5 billion euro.
Special measures worth 7.8 billion euro have been included for 2013 under the Memorandum of financial aid. Of these, 7.2 billion euro will come from cuts in budget spending. Unfortunately, they will focus again on reducing the social benefits of the weakest social strata and pensioners. The tripartite coalition government refuses to discuss layoffs in the public sector although everyone in Greece acknowledges that it is seriously inflated, expensive and highly ineffective. Therefore, the radical reform of public administration will be postponed for an indefinite period in the future.

"The draft budget reflects the strong effort of the government of national responsibility to stabilize the country's economy, to end the fluctuations in its future and to create the preconditions for restoring its productivity as well as to ensure the sustainability of the foreign debt," Deputy Minister of Finance Christos Staikouras told reporters.

At the end of 2013, Greece should be much closer to its target, which is to zero the deficit and to form a sustainable budget surplus. Next year, the deficit should fall to eight billion euro, which would be about 4.2% of GDP after the further shrinking of the economy. The state owes a total of over 7 billion euro in delayed payments to domestic suppliers. 3.5 billion euro will be paid by the end of this year and the rest will be paid in 2013.

Meanwhile, the talks between the government and the representatives of the European Central Bank, the European Commission and the International Monetary Fund continue in Athens. The heads of the mission of institutional lenders met Minister of Finance Yiannis Stournaras first and then visited the office of Prime Minister Antonis Samaras. According to unofficial information, the supervisory Troika does not approve the proposed measures amounting to two billion euro, which delays the agreement between Greece and the lenders and the payment of the next tranche is still receding.

The meeting of lenders with Prime Minister Antonis Samaras lasted for only half an hour. They refused to comment on the course of the negotiations. Greek media estimate that the supervisory mission does not believe in the government's ability to make structural reforms and it is pushing for alternative measures.

"The package of measures agreed so far is being negotiated. We requested clarifications and the talks continue," Yiannis Stournaras explained the nature of the meeting. He was adamant that new meetings between the government and the representatives of lenders would follow this week until the unclear areas have been clarified. Economic analysts believe that the protraction of negotiations will lead to a serious delay in the payment of the aid from Europe, which could cost the local banking sector dearly. These sources do not exclude the possibility for Greece to receive the aid following a political decision by the leaders of Europe, regardless of the content of the supervisory Troika’s report.


Tags: EconomyMarketsTroikaDraft budgetFiscal adjustmentGreeceCrisis
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