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Brussels: No financial support to Greece in December

17 November 2010 / 14:11:57  GRReporter
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The third tranche of the financial support to Greece from the eurozone countries was postponed to January 2011 the earliest instead of being paid in mid-December this year. This announced the Austrian Finance Minister Josef Pröll from Brussels, who said that Greece has failed to fulfill its obligations concerning the deficit reduction in compliance with the agreement with the eurozone countries. The news was reported firstly by BBC. According to initial information, the decision was taken late in the evening at a meeting of financial ministers in Brussels and affects the amount paid by the 16 countries in the European financial union. According to the Memorandum of financial support to Greece, one third of the amount is paid by the International Monetary Fund, and two thirds come from the countries in the eurozone.

Greece expected to receive nine billion euros in December under the Memorandum signed in May 2010. This is the third tranche of the financial support, which would be used for budget operating costs repayment, payment of pensions and salaries of civil servants. According to information from the Greek Ministry of Finance, the International Monetary Fund will pay its part of three billion still in December. The money from the European countries will be delayed due to technical time for processing the report data submitted by the supervising mission, not for other reasons. The press office of the Ministry stressed that recent developments will not lead to any fiscal imbalances in the country.

At the same time, the supervisory mission of the International Monetary Fund, the European Central Bank and the European Commission required the Greek government to guarantee that it will meet the objectives of reducing the budget deficit in 2011. The 2009 data revising proved that the Greek government has to handle another 2.6 billion euros, which mounted the deficit to 9.8 percent of GDP instead of 8.1 percent of GDP. According to press reports, the Financial Ministry proposed during the negotiations that burden to be allocated for the next two to three years, but the Troika rejected it.   

It became clear at the meeting of Financial Ministers in Brussels that the process of fiscal consolidation is impossible to be delayed. On the contrary, Greece should take additional measures to serve as a rescue parachute, if there is a delay in revenue collection for example. According to initial information, the financial plan for 2011 provides for measures and economic restrictions worth 9.15 billion euros. The new economic measures aimed at fiscal consolidation are totaling about four billion euros more than the next year goals. Sharp and relentless cost cutting will be the financial cushion (as it is called in Greece), which will ensure the reduction of budget deficit next year of around 22 billion euros today to 17 billion euros at the end of 2011.

Reassurance was necessary after the experience of 2010 showed in practice that despite the goodwill of the government to properly fulfill its duties under the Memorandum of financial support about two billion euros of revenue from uncollected taxes were missing by the end of October. Recession and structural problems in state administration have hampered further George Papandreou’s government.  

The Ministry of Finance is planning a major package of measures to reduce dissipation in the public sector from next year, which many economists define as the main culprit for the financial situation of Greece today. The first step that the government will take is to reduce the wages of state enterprises employees or to impose a ceiling on wage supplements, which should not exceed 10% of basic salary. It is also planned to reduce the number of civil servants through voluntary retirement programs. The government pledged not to fire employees in public administration and public enterprises, but to only transfer them to other institutions. One of the biggest issues remain health care costs, which should be reduced by 840 million euros next year.  

The cost of state aid for drugs will be cut by another 1.5 billion euros. At the same time, public transport companies budgets should be revised and this sector is expected to announce privatization programs for some of these companies. Greek ministries' budgets will be cut by 15% of operating costs and the government plans to reduce municipal expenditures by 500 million through the implementation of the Kalikratis law on regional rearrangement. Public investment program also falls victim to fiscal consolidation as its reduction will be at least 300 million euros.

Increase in the average VAT rate from 11% to 13% is expected on the revenue side as well as increase in the VAT on certain goods considered luxury from 11% to 23%. This will collect one billion euros in revenue. At least 600 million euros will be collected from criminal charges and fines on illegal constructions and rebuilding, which are common practice in the country. One billion will come from the special tax on particularly profitable enterprises with annual turnover exceeding five million euros.

Tags: EconomyMarketsBrussels
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