Greece promises spending cuts to curb deficit

Greece's Socialists promise spending cuts to curb soaring deficit

• By Derek Gatopoulos, Associated Press Writer
• On 9:49 am EST, Thursday November 5, 2009

ATHENS, Greece (AP) -- Greece's new Socialist government on Thursday promised to cut public spending in 2010 to reduce the country's soaring budget deficit, currently more than four times the limit set for countries using the euro.

Finance Minister Giorgos Papaconstantinou said the country's economic output would shrink by 1.5 percent this year and shrink by 0.3 percent in 2010 -- confirming that the country is in recession for the first time since 1993.

The 2009 budget deficit was expected to reach 12.7 percent of gross domestic product and would be reduced to 9.4 percent next year, helped by public spending cuts worth euro1.6 billion ($2.4 billion), Papaconstantinou said.

The figures were presented in the draft 2010 budget, due to be approved by parliament before the end of the year.

Prime Minister George Papandreou's Socialists ousted the conservatives in general elections last month and sharply revised deficit figures. The revision drew strong public criticism from EU finance officials, because countries that use the euro are committed to keeping their budget deficits below 3 percent of GDP.

Papaconstantinou blamed Greece's previous conservative government for "derailing" the country's public finances.

"There was a collapse of the tax-collection system ... that coincided with an uncontrolled increase in spending," the minister said in a live television address.

He said the state planned to gain euro1 billion ($1.5 billion)from a one-off tax hike on the country's most profitable businesses and further euro1.5 billion ($2.2 billion) from consumer tax increases including higher duties on cigarettes and alcoholic beverages.

State expenditures would be reduced through a euro500 million ($738 million) reduction in defense spending and euro1.4 billion ($2.1 billion) in savings through healthcare debt settlements.

Some of the money saved, he said, would be used to increase spending on education, hire 3,000 additional staff at state hospitals and boost welfare programs for low-income families.

Other costly programs will be scrapped.

The Socialists have already abandoned an incentive scheme for Greeks to buy new cars, along with plans for a possible buy-back of a stake in the former state telephone monopoly, OTE, from Germany's Deutsche Telekom.

Infrastructure Minister Nikos Sifounakis on Wednesday said the government could not spend the euro4 billion ($5.9 billion) required for the possible purchase of OTE shares.

"The European Union would never allow this given the current tragic circumstances of our economy," Sifounakis said in a radio interview.

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