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More than 12 billion euros in additional cuts from 2012 to 2014

13 December 2010 / 12:12:04  GRReporter
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Promises of quick and efficient way out of the crisis proved to be a far away dream for Greece after it became clear that the government should impose additional budget cuts amounting to 12 billion euros for the period 2012-2014. The measures to be taken should be specified not later than March 2011 and according to initial information they would represent about 5% of GDP for the period.
  
It is expected additional state pensions by sectors to be cut first if the government fails to implement the deficit reduction program in 2012. Basic pensions are not protected from further cuts if the Greek economy registers negative growth. Ideally, if the economic growth in 2012 is positive the value of pensions will be frozen. Social security system reform will review the parameters in the pension assurance, aligning them to new lower levels, if they burden public spending with more than 2.5 percent of GDP for 2009-2060. Social benefits and allowances will be reviewed, more stringent conditions are to be introduced for their granting and applicants should meet specific criteria related to the ceiling of income per household. Their amount is expected to be further reduced again a year after the cuts introduced in 2010. Unemployment benefits are expected also to be cut.

PASOK government pledged that winter heating benefits will not be cancelled but will be granted only to truly needy. Heating benefits criteria are not clear yet but it is expected heating benefits expenditure to be reduced in 2012. The Ministry of Finance officially stated it will allocate 400 million euros of state money to cover the heating needs of the poor in 2011. However, the Ministry increased the excise duty on heating oil making it equal to that of transport. According to initial estimates, the average cost of 0.70 cents per liter of heating oil in 2010 will rise to around 1.30 euros per liter in 2011.

Funding budgets of local government organizations will be further cut by half a billion euros each year until 2014, after the reform following the Kalikratis law on merger of municipalities. 15% of fixed-term contract employees in public administration will be cut from the next year. Additional savings will be provided by reforming or even closing unprofitable public enterprises the total number of which currently is about 54. Unified salaries scheme for public sector wages will enter into force in the beginning of 2011. It will be supervised by the Ministry of Finance and the average wage will not exceed four thousand euros including the middle management level. The Ministry if Finance will allocate since 2012 1/14 of the budgeted for each institution rather than 1/12. At the same time, all enterprises and institutions will have to make monthly reports on the activities and expenditures - a measure unknown to the Greek administration so far.

Meanwhile, it became clear that this year’s budget implementation is under question after the Audit Court announced that the deficit in December might increase by about two billion euros from what was planned. The reason is mainly in the revenue budget as the revenue in the 11 months of 2010 compared with 2009 increased by 5.3% instead of 6%. Tax increases had the opposite effect and instead of increasing the revenue in the Treasury they reduced household purchasing power and consequently brought lower revenue than expected.
 
The measures to be taken after 2012 depend on the ability of Greece to meet its obligations in 2010 under the Memorandum of financial support from the International Monetary Fund, the European Central Bank and the European Commission. The better the country copes with the implementation of the recovery program, the smaller are the possibilities for the introduction of new emergency budget cuts in the future. Detailed program for 2012-2014 will have to be submitted to the supervisory Troika in March 2011, when its representatives will visit Athens for the final approval of the fourth tranche of the aid, amounting to 15 billion euros.

Commissioner for Economic Affairs Olli Rehn stressed during his last visit to the Greek capital that the country must continue the structural and fiscal reforms and must strictly adhere to the implementation of the planned program. The Finance Minister of Greece repeatedly emphasized that the long-term economic benefits for the country will result not from cuts in the budget, but from a better functioning of the state after the completion of structural reforms.  

Tags: EconomyMarketsFiscal consolidationGreece
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