Tags: EU | EU | Greece | Economy

EU: Greece Broadly on Track With Budget Cuts

Wednesday, 07 Jul 2010 10:38 AM

The European Union's executive says Greece is "broadly on track" with budget cuts and economic reforms linked to 110 billion euros ($138 billion) in bailout loans from EU nations and the International Monetary Fund.

A Wednesday report by the EU says Greek efforts are "positive" but warned there a number of areas where Greece could run into trouble.

It says inflation is "markedly higher" than the government expects, partly because there is little market competition and major suppliers are easily able to pass on indirect tax increases to customers.

Inflation hit 5.2 percent in June from a year ago — the fastest rate of price increases in 13 years — as the government hiked taxes on alcohol and tobacco and oil costs rose.

Government revenues were below expectations with a 7 percent increase from one-off taxes, the EU says, but spending fell more than targeted, by almost 13 percent from a year ago.

The EU warns these figures are not certain because there are no final figures for sectors where spending can easily overrun — such as arrears in payments to hospitals and state funding to social security fund which the EU says may need a top up.

Government moves to implement spending curbs — especially crucial reforms to limit public expenditure on pensions — by the end of the year should compensate for these slippages, it says.

The report follows a June visit to Greece by European Commission, IMF and European Central Bank officials — who will follow up with another check at the end of July that will pave the way for Greece to receive a second payment from the bailout package in early September.

Greece promised to make major reforms in return for financial help after a runaway deficit alarmed markets and sent its borrowing costs soaring on fears that it could default on its soaring debt — due to overtake Italy's this year as the EU's largest as a percentage of economic output.

The harsh austerity program has triggered protests in Greece, with civil servants due to join a sixth general strike on Thursday against pension and labor reforms. Protest marches held during previous strikes have frequently been marred by violence.

Despite opposition at home, the Greek government is under intense international pressure — from other EU governments and market investors — to reduce debt. Markets are still worried that Greece could make investors take a "haircut" or lower returns on the Greek government debt that they hold.

The Greek economy is set to contract 4 percent this year and unemployment will likely keep climbing, the EU says.

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The European Union's executive says Greece is broadly on track with budget cuts and economic reforms linked to 110 billion euros ($138 billion) in bailout loans from EU nations and the International Monetary Fund. A Wednesday report by the EU says Greek efforts are ...
EU,EU,Greece,Economy
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2010-38-07
Wednesday, 07 Jul 2010 10:38 AM
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