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Ministers scramble to Luxembourg as Greece admits it will miss bailout targets

The shrinking Greek economy means the austerity drive will not be enough to ensure that the government deficit is within targets.

Greece's prime minister George Papandreou: Greece has acknowledged that it will not reach deficit targets laid out by the EU and IMF.
Greece's prime minister George Papandreou: Greece has acknowledged that it will not reach deficit targets laid out by the EU and IMF.
Image: KOSTAS TSIRONIS/AP

GREECE HAS ADMITTED it will miss the budget deficit targets laid down by the EU and IMF – conceding that its relentless drive for austerity will not be enough to meet Troika targets.

Draft figures for the country’s 2012 budget, released by its finance ministry last night, show that the country’s budget deficit would stand at some 8.5 per cent of GDP for this year, well short of the 7.6 per cent target required by the EU and IMF.

Bailout agreements had also projected a deficit within 6.5 per cent of GDP next year – though the government had promised only two weeks ago that it would turn a budget surplus next year. As it is, the government now expects debt to extend to 6.8 per cent.

Worryingly, even the 8.5 per cent target for this year also came attached with a health warning – with Reuters quoting a statement from the ministry as saying the 8.5 per cent estimate could only be achieved “if the state mechanism and citizens respond accordingly”.

Among the measures included in the draft budget is a commitment to a further round of public sector layoffs, in moves which the cabinet hopes will cut state spending by around 6.6bn.

The shortfall means that aside from the next €8bn tranche of loans from the Troika – a final decision on which is due in the coming days – the government will now need a further €2bn to cover its costs for the rest of the year.

Finance ministers from the Eurozone countries, including Ireland’s Michael Noonan, will today travel to meet the head of the Eurogroup – Luxembourg’s prime minister Jean-Claude Juncker – to discuss the findings.

Their meeting had been originally convened to discuss the potential expansion of the European Financial Stability Fund through ‘leveraging’ – potentially creating a bailout pot worth trillions – but Greece is now likely to top the agenda.

The gravity of the situation was underlined by a Wall Street Journal report which said that European economics commissioner Olli Rehn had rescheduled his day to attend meetings in Luxembourg just before the meeting of finance ministers.

It is thought that he may be meeting Greece’s finance minister Evangelos Venizelos, who was flying to Luxembourg yesterday evening – just as his ministry was releasing the grim budget estimates.

Reaction: Asian markets fall on Greek debt fears as eurozone inflation hits 3 per cent >

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Gavan Reilly

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