ATHENS (Reuters) - Greece unveiled on Monday an austerity budget which aims to unlock international aid by cutting public spending even harder, even though its economy is shrinking fast.
Painful cuts will be brought forward as the country faces what is expected to be a sixth year of recession.
The 2013 budget emerged as Finance Minister Yannis Stournaras met the so-called “troika” of International Monetary Fund, European Commission and European Central Bank inspectors, whose approval is vital to unlock the next installment of aid, urgently needed to avoid bankruptcy.
Greece will aim for a primary surplus, before debt servicing, of 1.1 percent of GDP next year, the first positive balance since 2002, after a 1.5 percent deficit in 2012. But the economy will shrink for a sixth year, by 3.8 percent.
There was no immediate comment from EU officials or the IMF, but Greek Finance Ministry officials said the troika still objected to some of the measures.
Economic output will have declined by a quarter since 2008 in a spiral of austerity and recession, with the most heavily indebted euro zone nation repeatedly missing targets set under its EU/IMF bailouts and at risk of being forced out of the single currency.
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.
The general government deficit, including debt servicing costs, will come to 4.2 percent of GDP next year from 6.6 percent in 2012, while unemployment will rise to 24.7 pct.
The draft gave no target for privatization revenues. In a sign of the daunting scale of Greece’s problems, public debt is projected to reach 179.3 percent of GDP next year despite a major write-down of debt owed to private investors this year.
The budget will make more cuts to public sector pay, pensions and welfare benefits as part of an 11.5 billion euro ($14.8 billion) package of savings over the next two years.
“We must hold on tight to the helm to make the difficult turn,” Stournaras said. “It’s the only way for the Greek economy to return to the righteous cycle of fiscal stability and growth.”
Labor unions immediately threatened more strikes this month after a crippling walkout marked by clashes last week.
“We don’t have any other option. We can’t just sit around doing nothing,” said Nikos Kioutsoukis, general secretary of the largest private sector union GSEE.
Austerity-weary Greeks have taken to the streets in often violent protests against waves of salary and pension cuts that have driven many to the edge.
Prime Minister Antonis Samaras, who has vowed this is the last round of cuts, also met the troika chiefs later on Monday to convince them to lift their last objections, but there appeared to be little progress.
“There are discussions on the measures. The troika wants clarifications,” Stournaras told reporters. Officials said inspectors doubt about 2 billion euros worth of measures would actually be delivered.
Dozens of protesters waving Greek flags and shouting “out with the troika” jeered the international creditors’ envoys 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 would receive its next aid tranche despite budget shortfalls and slow progress on reforms because the euro zone does not want any country to leave the common currency.
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.
Analysts expect the coalition, which holds 178 out of 300 parliament seats, to pass the bill despite any defections.
Government officials said Athens will frontload a big chunk of the new spending cuts under negotiation with the troika, which has yet to approve the 7.8 billion euros worth of measures, which include 3.8 billion in pension cuts and 1.1 billion in state salary savings.
($1 = 0.7773 euros)
Additional reporting by Karolina Tagaris and Renee Maltezou; Writing by Dina Kyriakidou; Editing by Paul Taylor, Will Waterman and Giles Elgood