By: Dr. Mike Campbell
Whilst markets wait to see if the Irish government will accept an EU bailout to defuse their sovereign debt crisis, the Greeks, who were the trigger for the first sovereign debt crisis in the spring, have announced more austerity measures.
The Greek government intends to cut the deficit for 2011 to 7.4% of GDP. This will require that the Greeks find savings to the tune of €5 billion by the end of next year. The deficit for 2010 is currently anticipated to come in at 9.4% of GDP. The Greek economy is still in recession and is expected to contract by 4.2% this year and a further 2.6% in 2011.
The austerity measures just announced will see further cuts in the health and defence budgets and sales tax on most retail items is set to increase from 11 to 14%. The budget also indicates that four state-owned Airbus A340 aircraft will be sold off and share in state-owned industries will also be liquidated. The country will be selling off part or all of the nation’s stake in rail operator Trainose, the defence group Hellenic, DEPA (a gas operating concern) and mining firm Larko.
Greece has stated its intention to get the deficit back under the 3% of GDP level permitted by Eurozone rules, by 2014. As a condition of the €110 billion bailout package put together by the EU and the IMF, Greece had to agree to measures to reduce both the public deficit and government debt. The rescue package calls for funds to be released in three phases and each tranche of funding is contingent on progress being made with debt reduction measures.