Greece recession and debt problems even worse

Greek demonstrator smokes a cigarette during a break from protesting against the government's decision to cancel some of the money it owed her The government faces anti-debt cancellation protesters as well as anti-austerity ones

Greece's draft budget for 2013 has forecast a deeper recession and worse debt problems than previously thought.

The economy is expected to shrink by 4.5% next year, and government debts to rise to 189% of economic output.

Greece held inconclusive negotiations with its rescue lenders on Wednesday over the economic reforms needed to release further bailout funds.

The government also faces opposition to the reforms from coalition partners and unions have called a general strike.

Finance Minister Yannis Stournaras held a conference call on Wednesday with his counterparts from the Eurogroup of eurozone finance ministers, as well as representatives of the International Monetary Fund and European Central Bank.

The German Finance Minister Wolfgang Schaeuble said afterwards that Athens still needed to do more.

"There is progress in the talks but there is still a lot of work to do," he said. "Time is tight."

The package under discussion includes spending cuts to be included in the 2013 budget, labour market reforms and the privatisation of state assets.

Ministers hope that a deal will be ready for formal approval at a Eurogroup meeting scheduled for 12 November.

Strike

Greek Prime Minister Antonis Samaras has warned that Greece will run out of cash next month unless it receives 31.2bn euros in loans from the EU and IMF.

He had claimed on Tuesday that an agreement had already been reached, but this was quickly challenged by his coalition partners and later denied by both the European Commission and the Eurogroup.

Mr Samaras' junior coalition partner, the Democratic Left, expressed concerns over labour market reforms that it said would weaken workers' rights.

Parliament had been due to vote on a full package of reforms, including the budget, on Tuesday, but this has had to be delayed a week in light of the Democratic Left's opposition.

Lady begs outside Bank of Greece

Athens wants more time, but others in the eurozone now think that it may be best to cut Greece loose

The budget includes 13.5bn euros ($17.4bn; £10.8bn) of cuts.

Greece's two main trade unions have called a 48-hour general strike on 6-7 November to protest against the austerity package.

"The central aim and demand of the unions is the rejection [by parliament] of unacceptable, destructive and coercive measures imposed by the troika [the European Commission, IMF and ECB]," the GSEE union said.

Narrow vote

Mr Samaras is also seeking broader powers to privatise public services.

On Wednesday, parliament narrowly passed a privatisation bill that paves the way for the sell-off of state-owned utility companies.

The bill, which is one of the reform measures required by Greece's troika of lenders, was passed by a majority of only 148 to 139 - even though the governing coalition is nominally supported by 176 deputies in the 300-seat parliament.

Some deputies from the government's two left-wing junior coalition parties, Pasok and Democratic Left, voted against.

On Tuesday, the head of the Greek privatisations agency said that the target for total revenues from the sale of state assets - an element of its agreement with its lenders - had been lowered to 11bn euros by the end of 2016.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

The previous target had been to achieve 19bn euros by 2015.

Surplus

The Finance Minister, Mr Stournaras, announced the government's latest growth and debt forecasts ahead of the vote.

He said that the economy is now expected to shrink 4.5% next year, instead of 3.8%.

If the forecast proves correct, it would mean that by the end of 2013 the Greek economy would have shrunk by a cumulative 22% since 2008, based on data from the EU's statistical office, Eurostat.

Unemployment in Greece stands at 25% of the labour force, while across the eurozone it was revealed on Wednesday that unemployment had risen to 11.6% in September.

Government borrowing is expected to reach 5.2% of economic output in 2013 up from 4.2%, and total government debt to hit 189% instead of 179%.

The upwardly-revised deficit forecast would still mark an improvement on the 6.6% figure expected for this year.

The expected overspending in 2013 is entirely accounted for by the cost to the government of meeting interest payments on its existing debts.

Excluding these interest payments, the government actually expects to run a small net revenue surplus equal to 0.4% of Greek economic output.

Haircut

Meanwhile, Thomas Wieser, who co-ordinates the Eurogroup of finance ministers, told German radio on Wednesday that the Greek government may be granted the extension of up to two years that Athens has asked for to implement its reform package.

A delay to spending cuts would necessitate even more borrowing by the government in order to cover its over-spending.

However, Mr Wieser said that this could be accommodated within the existing bailout programme.

He denied that it would be necessary for Greece to negotiate with its lenders a further partial cancellation, or "haircut", of its existing debts - something that has been backed by the IMF.

"In none of these rounds of discussions and negotiations was the word 'haircut' ever mentioned," he said.

Eurozone crisis explained

Private sector creditors agreed to write off approximately three-quarters of the money owed to them as a condition for Greece receiving its second bailout package earlier this year.

There has been speculation that Greece may be granted further alleviation of its debt repayment terms, perhaps via lower interest rates and more time to repay, and this time including debts it owes to public sector lenders such as the European Central Bank or the Eurozone bailout funds.

However, Germany's Finance Minister Wolfgang Schaeuble has repeatedly opposed any cancellation of the money Greece owes to its bailout lenders, who ultimately include German taxpayers.

More on This Story

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.