Greece: Greek government approves new spending cuts
September 27, 2012
The Greek economy remains in dire straits, as both investors and European politicians grow weary over the country's tardiness to break the current impasse over the implementation of new austerity measures. On 11 September, the Ministry of Finance reported a EUR 12.4 billion deficit in the first eight months of the year, which was below the EUR 15.2 billion target. However, according to preliminary estimates from the ECB-IMF-EC Troika, Greece's budget deficit actually stood at some EUR 20 billion in the January-August period, raising further questions about the state of Greek finances. After lengthy negotiations, on 27 September, Prime Minister Antonis Samaras from the New Democracy party and his coalition partners struck a deal over EUR 13.5 billion of budget adjustments. The package contains EUR 10.5 billion of new spending cuts, which include slashing pensions and raising the retirement age, as well as an increased tax revenues of EUR 3.0 billion. A successful implementation of new measures is imperative for Greece to receive the next aid tranche of EUR 31 billion from the second bailout package of EUR 130 billion. On 1 October, the government sent the draft budget including the adjustments to parliament and has already been met with reservations by the Troika. According to the bill, the government now expects the economy to contract 3.8% in 2013, well below the flat growth estimate underlying the second bailout package at its inception in March 2012. Given the somber outlook of Greece experiencing a sixth consecutive year of recession, the IMF and some ECB officials are doubtful whether the two bailouts will be sufficient to bring the country's finances to a sustainable level. Several analysts have voiced their concern and some even see the possibility of a new aid package or another debt write-down on the horizon. Meanwhile, the social climate in the country continues to deteriorate. On 26 September, the country's two biggest labour unions organised a 24-hour general strike against planned spending cuts, which triggered violent protests, disrupted local transport and shut down public service offices.