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Greece sees deficit gains, but IMF warns on debt

October 10, 2013

ATHENS, Greece (AP) — Greece says it is due to meet a key deficit-cutting target this year, but the International Monetary Fund warned the country may be forced to make new spending cuts.

Deputy Finance Minister Christos Staikouras said the budget deficit for January to September was 2.66 billion euros ($3.6 billion), significantly less than the 8.27 billion-euro target. Excluding the cost of debt servicing, there is a 2.62 billion-euro surplus, better than the target for a roughly equivalent deficit.

“The first positive signs of the country exiting the crisis are there,” he said.

The IMF, however, poured cold water on Greek hopes, forecasting in a new report that Athens would need to find new cost savings through 2016. Debt-burdened Greece is struggling to rescue its public finances after four years of austerity measures which have ravaged the economy.

Because the IMF is — alongside eurozone countries — giving Greece rescue loans, its views carry weight. It is unlikely to allow the payment of more bailout loans, which are issued in quarterly installments, unless it finds Greece’s debt outlook is sustainable.

In Washington, IMF managing director Christine Lagarde tried to calm Greek worries, saying that talk of fresh cuts was still “premature” and that details of potential new measures would depend on the effectiveness of tax reforms and the country’s privatization program.

“If new measures were needed, I can tell you one thing: It’s not going to be in the form of additional fiscal measures and it will not be in form of across-the-board, undifferentiated cuts in wages or pensions,” Lagarde told a news conference.

Greece’s debt is due to reach 175.5 percent of GDP this year and must fall below 110 percent by 2022.

The IMF says Greece’s European bailout creditors will have to forgive some of the loans the country owes them to render the debt manageable, an unpalatable outcome for major creditors such as Germany.

European governments have committed to help Greece manage repayment of its rescue loans, provided it meets its targets. But while some easing of repayment terms is likely, a cut in the actual outstanding sum would be hard to sell to Europe’s taxpayers — even were their governments in favor.

Meanwhile, new data illustrate the social impact from nearly four years of austerity.

The unemployment rate — the highest in the 28-member European Union — reached 27.6 percent in July from 27.5 percent a month earlier. Youth unemployment was 55 percent. Industrial output fell 7.2 percent on the year to August, with both imports and exports dropping sharply.

The government expects the economy to start growing again next year — the first average annual growth since 2007 — but only at an anemic rate of 0.6 percent.

It also forecasts modest jobs growth next year, although unemployment is set to remain at an average 26 percent. The biggest labor union, the GSEE, expects unemployment to exceed 30 percent in coming years.


AP writers Marjorie Olster in Washington DC and Derek Gatopoulos in Athens contributed.

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