Late Sunday, the Greek cabinet announced that it had adopted a draft budget for 2012, but one that will miss key deficit targets laid out by its lenders per the terms of its bailout agreement.
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The preliminary budget has Greece’s deficit at 18.69 billion euros, or 8.5% of gross domestic product, in 2011. Greece originally agreed to cut the deficit to 17.1 billion euros, or 7.8% of GDP.
Greece’s troika of lenders — the International Monetary Fund, European Commission, and the European Central Bank — have been in discussions over the past few weeks as to whether or not to provide Greece with its next tranche of aid, an 8 billion-euro payment supposed to be released in October, without which Greece is expected to run out of money within the month.
When announcing its new budget, the Greek cabinet said the main reason it would the deficit target was a worse-than-expected recession. The Greek economy is expected to contract 5.5% this year, significantly worse than projections in May of a 3.8% decline.
Greece has already implemented severe austerity measures that have cut spending, reduced wages, and raised taxes, much to the detriment of the nation’s economic recovery efforts, all in an attempt to keep its debt under control and convince the troika that it was taking the necessary steps to receive its next installment of aid.
“We are forced to take decisions much faster than we would wish,” said Prime Minister George Papandreou in addressing the cabinet, “due to the enormous deficit figure. That then creates recessionary problems.”
Papandreou said his government had every intention to stick to its bailout agreement, no matter how unpopular the austerity measures might be with the public. The budget includes another 6.6 billion euros in deficit cutting measures for this year and 2012. However, the deficit is still expected to be 6.8% of GDP next year, higher than the troika’s target of 6.5%.