Greek budget will 'cut deficit' by 2012

image captionMr Papademos heads up a temporary coalition government

The new Greek government has submitted its plans for next year's budget, promising to almost halve the deficit.

Finance Minister Evangelos Venizelos predicted the deficit would fall from 9% of GDP this year to 5.4% in 2012 due to a write-off of debt held by banks.

The cut, of up to 50% of Greece's debt held by commercial banks, is part of the eurozone's latest bailout deal.

Mr Venizelos said banks would be given different options over how to take part in the debt deal.

Coalition government

"There won't be one model for Greek banks and foreign banks (alike), but there will be two or three variations and anybody can pick the one that suits them," he said.

The budget is being proposed by the new coalition government headed up by the former head of Greece's central bank Lucas Papademos.

Passing it is required in order to keep receiving EU bailout funds under an agreement reached in October. Greece has been relying on international bailout funds since 2010.

Mr Papademos said the EU deal made Greece's national debt "totally sustainable".

The budget predicts that, excluding interest payments, Greece would post a primary surplus in 2012 of 1.1%.

The government also said it did not need to implement any further austerity measures to achieve the deficit reductions.

The latest round of cuts was introduced in October and include slashing pensions, wages and jobs across the public sector and raising taxes.

The measures have had a severe impact on the economy. The economy is expected to shrink by a total of 5.5% this year and 2.8% next year.

If the economy performs worse than expected, as it did in 2011, there are concerns that Greece may again fail to cut its deficit significantly.