Greece must make 'extra effort' to hit 2011 budget target

It’s been six long months since the EU and the IMF bailed out Greece to the tune of €110bn (£91bn), and officials have warned that an “extra effort” must be made to reduce next year’s budget deficit if the country is to keep receiving aid.

The demand came as Greece prepares to accept a €9bn handout next month - the third tranche of the massive loan agreed in May. Despite receiving €20bn in May and €9bn in September, it will be three years before it has all the money.

Greece has promised to cut its deficit to 7.5% of gross domestic product (GDP) in 2011 from 9.4% this year and 15.4% in 2009.

Poul Thomsen, head of the IMF’s Greece mission, said more spending cuts at the state level had offset a revenue shortage. But he believes “this is not sustainable long-term”.

An increase in tax revenue and more efficient state spending will only come about following “deep structural reforms”, thinks Thomsen.

The comments came as the European Union (EU), European Central Bank (ECB) and International Monetary Fund (IMF) completed the second review of Greece’s economic programme.

Things are "broadly on track", according to a joint statement from the trio, which anticipate the Greek economy will start to turn around next year.

But the country’s health service and bloated state-owned businesses like the railways – overstaffed and overpaid – will need to undergo a further round of jobs cuts.

“Data revisions for 2009 and weaker-than-projected revenue collection mean that an extra effort will be needed to meet the deficit target of 7.5% of GDP in 2011, which the government has reaffirmed," Thomsen says.

Greece has agreed to tackle all these issues – worth 2.5% of GDP - in next year’s budget. Progress will be measured at the next review in February.

An austerity budget has already outlined plans for a reduction in spending on health and defence as well as a hike in sales tax to 14% from 11%. But drastic action is required as number crunchers within the Greek finance department now believe the economy will shrink by 4.2% this year and 3% in 2011. It had only pencilled in a 2.6% decline for next year.

Prime minister George Papandreou must implement the cuts while keeping a highly-unionised workforce under control. Strikes and violence dominated the weeks following the rescue and protests have become a regular occurrence.

His socialist party suffered losses in recent local and regional elections as the population adjusts to life without bonuses for public sector workers, a freeze on pay and pensions, higher taxes and a crackdown on tax evasion and corruption.

“Every citizen must sacrifice some of their prosperity to safeguard the future,” Papandreou told voters.