Greece’s parliament approved the government’s 2011 budget that aims to cut the fiscal deficit to about half of last year’s level, when it swelled to the largest in Europe and triggered a regional debt crisis.
The budget passed by a vote of 156 to 142 in the Athens- based parliament. Measures include euro 14 billion ($18.4 billion) in spending cuts and additional revenue aimed at cutting the shortfall to 7.4 per cent of gross domestic product, from a projected 9.4 per cent this year and meeting conditions of a 110 billion-euro bailout from the European Union and International Monetary Fund approved in May.
“I am not calling on you to vote for this because it leads us to the road to salvation, I call on you to vote for this because it is a punctual continuation of a plan we committed to, so we can respect the sacrifice Greek citizens made in 2010,” Finance Minister George Papaconstantinou told the country’s 300- member parliament.
Greece’s debt woes broadened into a euro-area crisis this year and governments from Lisbon to Rome have struggled to convince investors they can reduce debt and deficits enough to prevent future bailouts. The EU and IMF agreed on an 85 billion- euro aid package for Ireland last month, and borrowing costs in Portugal and Spain rose to euro-area records on concern they may be next.
Fitch Ratings, the only rating company that still considers Greek debt investment grade, followed Moody’s Investors Service and Standard & Poor’s this month in placing the country’s credit rating on review for a possible downgrade. Moody’s cited heightened concerns about whether the country will be able to reduce its debt to “sustainable levels”.
The extra yield investors demand to buy Greek 10-year bonds over German bunds rose 2 basis points to 908 today. The premium reached a record 973 basis points on May 7.
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Greece’s debt as a percentage of GDP stood at 127 per cent in 2009, the highest in the 27-nation EU. The EU says the ratio will rise to 156 per cent in 2012. Greece has said debt as a percentage of GDP will peak in 2013. The European Commission forecasts the economy will contract for a third year in 2011, shrinking 3 per cent, before returning to growth in 2012.
Greece’s two biggest unions staged a 3-hour walkout yesterday and transport workers held their fourth 24-hour strike this month. About 2,000 workers marched to parliament before the budget vote to protests the additional austerity measures, police estimated.
Prime Minister Papandreou and his socialist Pasok party came to power in October 2009 and soon revealed that the deficit was twice what the outgoing government had estimated.