Minister offers calm words as Greek deficit doubles

Greece pledged to tame its soaring budget deficit next year after official figures released last week showed the 2008 public spending gap rose to 5 percent of economic output, two percentage points over the EU limit.

The figure released by the EU statistics agency Eurostat was double the initial budgetary forecast, which the Karamanlis government later revised up to 3.7 percent.

Economy Minister Yiannis Papathanassiou said the spike in the deficit was mainly due to the global crisis and the increased cost of government borrowing.

But he insisted that this year Greece would meet its deficit target of 3.7 percent, and would bring the gap below the EU limit of 3 percent in 2010.

“The government has decided to tell the whole truth to citizens and in particular to take all the measures required, so that the country can emerge from the global financial crisis with the least possible consequences,” said Papathanassiou.

He insisted that the course of this year’s budget will be much clearer in June and only then will the government decide whether any further action is required.
However  Greece must urgently undergo long-delayed structural reforms, analysts said.

“It’s going to be really, really difficult,” said economist Diego Iscaro at IHS Global Insight. “I don’t think they (the government) can do a lot at the moment,” adding that any measures to cut the deficit would lower support for a government already facing discontent with its economic policies.

Fitch Ratings agency has said it may maintain or cut its rating on Greece in the coming months as the lack of reforms makes coping with the global crisis difficult.

“The government must keep its nerve, although it has a one seat majority, it has a majority,” Chris Pryce at Fitch Ratings said. “Public spending must be cut, they must continue efforts to raise taxation, to decrease tax avoidance and pursue longer-term reforms, which means obviously the pension system.”

PASOK leader George Papandreou said the latest deficit figure was proof of the government’s incompetence.

“We are enraged by the fact that Greece is in the sights of the European Union, with a deficit of 5 percent ... and with euro 80 billion ($103.6 billion) added to the national debt in the last five years,” Papandreou said.

Bank of Greece governor George Provopoulos said last week Greece could balance its budget by 2012 if “massive tax evasion” is curbed and wasteful spending is cut.