* Budget to project 3.8-4 pct economic slump
* Athens to aim for 1.1 pct of GDP primary surplus
* Will frontload austerity measures in 2013
* Troika officials heckled
By Lefteris Papadimas and Dina Kyriakidou
ATHENS, Oct 1 Greece will bring forward painful
budget cuts to end a decade of primary deficits while grappling
with a sixth year of recession, according to a 2013 budget draft
aimed at satisfying international lenders.
The government will unveil a tough austerity budget later on
Monday, after Finance Minister Yannis Stournaras concludes a
meeting with the so-called "troika" of International Monetary
Fund, European Commission and European Central Bank inspectors
for any last-minute tweaks.
Government officials told Reuters Greece will aim for a
primary surplus before debt servicing of 1.1 percent of GDP next
year, from a 1.5 percent deficit in 2012, the first positive
balance since 2002. But the economy will continue to shrink for
a sixth year in 2013 by 3.8 to 4 percent.
Greece's economic output will have declined by a quarter
since 2008 in a vicious spiral of austerity and recession, with
the most heavily indebted euro zone nation repeatedly falling
behind in meeting targets set under its EU/IMF bailouts and at
risk of being forced out of the single currency area.
Analysts said even the recession scenario set out in the
budget appeared optimistic, given Greece's slow reform efforts
and a weakening euro zone economy.
"Chances are the budget targets will be missed because of
the deeper recession which the cuts will bring and the inability
to meet privatisation targets," said Xenofon Damalas, head of
investment services at Marfin Egnatia Bank.
The budget draft will include more cuts in public sector
pay, pensions and welfare benefits as part of an 11.5 billion
euro ($14.8 billion) austerity package of savings that will be
spread out over the next two years.
Austerity-weary Greeks have taken to the streets in often
violent protests against the waves of salary and pension cuts
that have driven many to the edge. Prime Minister Antonis
Samaras, who will also meet the troika chiefs later on Monday,
has vowed this is the last round of cuts.
Troika officials were jeered by dozens of protesters waving
Greek flags and shouting "out with the troika" as they entered
the finance ministry on Monday.
At stake is a 31.5 billion euro installment from a 130
billion euro second bailout keeping Greece afloat. Lenders have
made clear no money will be disbursed without credible measures.
However two German magazines reported on Saturday that
Athens will receive its next aid tranche despite budget
shortfalls and slow progress on reforms because the euro zone
does not want the country to leave the common currency.
The business weekly Wirtschaftswoche quoted a senior EU
official as saying fear of a "domino effect" if Greece is forced
to exit the euro zone is too great to contemplate withholding
Lenders are coming to terms with the fact Greece will need
more time, more funding or a restructuring of the official debt,
that owed to European governments, to survive. Sources say the
IMF prefers another haircut but the EU, which will suffer most
of the losses, would rather give Athens more time.
"Those who accept Greece's optimistic predictions want to
gain time to resolve the debt crisis overall," Damalas said.
"But talk has already begun that the austerity measures are not
enough and a new, official haircut will be needed - which
explains the tension between the IMF and the EU."
In Germany, the main contributor to euro zone rescue funds,
the main opposition challenger for chancellor, Peer Steinbrueck,
said on Sunday the Greeks should be given more time and help to
meet their reform targets.
However, Slovak Prime Minister Robert Fico predicted in a
television interview that the euro zone would not survive in its
current form and said Greece and possibly another country would
be forced to leave once it became clear they were unable to meet
TENSIONS AT HOME
Two junior leftist parties in Samaras's coalition government
have resisted the cuts and a handful of deputies have warned
they will vote against the bill in parliament, which will debate
the draft and vote on the final version in mid-December.
"We are trying to rescue whatever we can even at the
eleventh hour," Andreas Papadopoulos, spokesman for the small,
co-ruling Democratic Left party, told Reuters, signalling the
battle in parliament will be intense.
Analysts expect the coalition, which holds 178 out of 300
parliament seats, to pass the bill despite any defections. The
final budget is expected to differ from the draft.
A government official, who spoke to Reuters on condition of
anonymity, said Athens will frontload a big chunk of the new
spending cuts under negotiation with the troika.
"The draft budget will include 7.8 billion euros in cuts for
2013," the official said.
Belt-tightening has taken a toll on economic activity,
suppressing domestic demand and driving the jobless rate to a
record of almost 25 percent.
This year's primary deficit - which excludes debt servicing
costs - is expected to exceed a targeted 1.0 percent of GDP. The
finance ministry sees the primary deficit at 1.5 percent of
national output in 2012.
Returning to a primary surplus will hinge on how faithfully
the government sticks to the unpopular measures, after years of
missed targets that have angered its partners.
"In terms of the government meeting the targets, it will be
very difficult," said Ben May, European economist at
London-based firm Capital Economics, adding that tensions within
the coalition could derail efforts especially if the troika asks
for additional measures down the road.
"We are at the stage where all the easy options have
disappeared," he said.