Reply #11: Greek parliament approves budget cuts

[Demeter]

http://www.ft.com/cms/s/0/86b42d82-f07b-11de-839a-00144feab49a.html

The Greek parliament voted in the early hours on Thursday to give the government the green light to implement its 2010 budget, which seeks to reduce the deficit by four percentage points to 9.1 per cent of GDP

Speaking just before the voting began, George Papandreou, prime minister, said the 2010 budget was the most difficult and important since 1974 when democracy returned to Greece.

All 160 deputies of the ruling socialist Pasok party voted in favour of the budget while 139 deputies of the opposition parties voted against, with one deputy abstaining.

George Papaconstantinou, finance minister, has set an even lower target for the 2010 budget deficit to 8.7 per cent of GDP to convince the markets of the government’s intentions to put the public finances in order and arrest the growth in public debt, which is the second highest in the eurozone as a percentage of GDP.

Even so, it will not be easy since the credibility of the country has been hurt by its inability to deliver on its budget promises in the past. The government, which came to power after a landslide victory in early October elections, does not have much time either since Greece will have to borrow some €54bn ($78bn) next year to finance the budget deficit and roll-over its maturing debt.

Analysts believe Mr Papandreou will need to side with the reformists in his party, risking the alienation of the old guard which has a more populist economic agenda, while seeking the support of trade unions and other interest groups. This is likely to be a delicate balancing act.

“What counts is effectiveness in cutting expenditure and raising the projected revenues,” said Constantine Boukas, director of asset management at Beta Securities.

“There is some relief following Moody’s decision to downgrade Greece by one notch which gave the government a bit of time to implement its strategy, but this is just a respite.”