Greece faces difficult week in finance talks with EU, IMF

ATHENS, (AFP) - The Greek government faces a tough round of talks this week with key international benefactors on its campaign to reduce the public deficit next year, with the agreed 2010 target in apparent jeopardy.

Representatives from the European Union, the European Central Bank and the International Monetary Fund are due in Athens on Monday to assess the efforts so far by the Socialist government to stabilise public finances.

The government on Thursday is to present its 2011 budget to parliament.

The EU-ECB-IMF team will decide at the end of its mission if a third installment of its 110-billion-euro (150-billion-dollar) rescue package will be made available to Greece.

This installment is worth 9.0 billion euros.

The deal was approved in May to help Greece, weighed down by heavy debt, meet its obligations.

The country has already received 30 billion euros in exchange for measures aimed at curbing spending, notably through radical austerity measures and deep reforms of the economy.

The Greek economy shrank by 4.5 percent in the last 12 months, official data showed on Friday. Gross domestic product contracted by 1.1 percent in the third quarter from output in the second quarter, according to data from the ESA statistics agency said.

The agency attributed the contraction mainly to a fall in household consumption and investment.

On Monday the European statistics agency Eurostat is to release its estimate of the Greece’s 2009 public deficit -- but it is expected to come to 15 percent of gross domestic product rather than an initially forecast 13.6 percent.

Prime Minister George Papandreou acknowledged that because of this upward revision, the 2010 deficit target of 8.1 percent agreed with the EU and IMF in exchange for their help could be surpassed.

Press reports have said the shortfall could even come to more than 9.0 percent.

Papandreou has insisted that the expected widening in the 2010 deficit would be the result of an upward revision to the 2009 figure and would not represent an absence of commitment on the part of the government.

But that argument could fail to convince investigators from the EU, the ECB and the IMF.

While the government has managed to reduce spending, it has been less successful in boosting public revenues. The finance ministry has estimated the shortfall in the January-October period at 2.0 billion euros.

In addition, fears of instability that preceded local elections earlier this month prompted a resurgence in tension on the financial markets, where the yield -- the interest rate the government has to pay to borrow -- has risen.

“The 2011 budget cannot ask any more from the middle class, from workers and retirees who have already contributed as much as they can to restoring financial stability,” Transport Minister Dimitris Reppas said last week.

The Bank of Greece has said the three categories cited by Reppas had had their incomes reduced by 8.0 percent in response to tax hikes and cuts in public-sector salaries and pensions. But Reppas acknowledged that the government had to meet the demands of its benefactors if it wanted to negotiate a possible delay in repaying their loans.

For Lucas Papademos, a former deputy ECB governor, the task now is to step up the pace of privatisations -- notably of the postal service and the railroad -- and to reduce the weight of the state in the economy.