Greek may face more IMF/EU pressure on deficit slippage

By George Georgiopoulos ATHENS, Nov 12 (Reuters) - The International Monetary Fund and European Union may press Greece for deeper spending cuts next week after a government official acknowleged that the country's budget deficit this year would be worse than expected. Greece is set to miss its targeted budget deficit of 7.8 percent of gross domestic product (GDP) this year, a government official told Reuters earlier this week, adding it would come in around 9.3 percent. The official also said the EU statistics office Eurostat would next week revise Greece's 2009 budget deficit to 15.5 percent of GDP, from the previous 13.8 percent. These revisions are not enough to prompt the IMF and the EU to withdraw financial support organised under a 110 billion-euro bailout package. But analysts say Greece will almost certainly be asked for fresh measures to cut the deficit. The emergency funding, with the next 9 billion-euro disbursement due in November, is conditional on Greece delivering on reforms and targeted fiscal progress. IMF, EU and European Central Bank officials start a visit to Athens on Nov. 15 to monitor fiscal progress. "Greece will now come under heavy pressure to implement an even more draconian fiscal squeeze. Any upward revision (of this year's deficit target) would partly reflect weaker than anticipated revenue growth," said economist Ben May at Capital Economics. He said a bigger factor would be the worse starting point for the budget gap because of the Eurostat revision. Some economists predict the donors may ask Athens to implement new savings about one percent of GDP next year. They say these savings can only be made via spending cuts, as further tax hikes risk driving the economy into a deeper tail spin. "What is needed now to cover for the slippage in the deficit's reduction are new measures directed towards government spending and a clamp down on tax evasion," said Gikas Hardouvelis, an economist at EFG Eurobank. A euro zone source said the delegation will focus next week on fiscal data revisions and how changes to the 2009 figures might impact deficits in 2010 and 2011. "There is a bit of a mess with the figures so we will have to eventually the Greeks will catch up and correct that to get the deficit below 3 pct in 2014," the source added. "NOT AN OUTRIGHT FAILURE" Greece is required to cut its deficit to below 3 percent of GDP by 2014 as part of the bailout deal. But austerity measures aimed at achieving that have hammered the economy. The state statistics service said on Friday the economy had contracted by 4.5 percent year-on-year in the third quarter, compared to a 4 percent fall in the previous three months. That appears to confirm official forecasts of a 4 percent economic slump in 2010.. But analysts say missing the deficit targets should not be considered an outright failure on Greece's part. "Clearly it would have been much better had the government been able to hit the original 7.8 percent target and it is disappointing that it hasn't, but this should not be regarded as outright failure," said Chris Pryce, analyst at Fitch Ratings. "The revenue performance is weaker than the government would like but reduction of the deficit by 5 or 6 percentage points is still an achievement which it can point to with some pride." The central government's budget deficit shrank by 30 percent in the 10 months to October, slightly below the 36.9 percent annual target, data showed earlier this week. The Greek government, which won only a wafer-thin victory in last weekend's local elections, may find it tough to impose more belt-tightening upon a population which has already endured a swathe of unpopular reforms in the past year. Prime Minister George Papandreou has said there will be no more burden on the shoulders of pensioners and wage earners. Finance Ministry officials declined to comment ahead of the official presentation of the 2011 final draft budget on Nov.18. Hardouvelis of EFG Eurobank said Greece needed to work on putting loss-making state firms back onto a sound footing. "The economy cannot take a new increase in tax rates," he said. "While in 2010 the government needed political will to take the measures it did, in 2011 it will need managerial ability. (Additional reporting by Jan Strupczewski in Brussels and Ingrid Melander and Lefteris Papadimas in Athens; Editing by Sujata Rao) Keywords: GREECE ECONOMY/ (; +30210 3311813; Reuters COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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