Greece’s Finance Minister announced today that Greece has cut its deficit by 42 percent so far this year. George Papaconstantinou went on to say that Greece is actually exceeding the deficit reduction targets imposed by the International Monetary Fund and the European Union in return for emergency funding of 110 billion euros (US$138 billion) provided earlier this year. Information supplied by the Greek Central Bank, indicates that government debt, which stood at 19 billion euros (US$23.9 billion) one year ago, has been cut to 11.5 billion euros (US$14.4 billion).
As a percentage of Gross Domestic Product (GDP), the deficit is now pegged at 4.9 percent of GDP. This is under the 5.8 percent target set by the IMF and the Greek government says it will reduce the full-year deficit to 8.1 percent of GDP compared to last year’s 13.6 percent.
Public Protests Rail Against Spending Cuts
Shortly after the last election which brought George Papandreou’s Pan-Hellenic Socialist Movement to power with a shaky seven seat majority, officials admitted that Greece’s deficit was actually three times worse than originally revealed. Since being forced to adopt new “austerity†measures, total government spending has been cut 15 percent with few areas left untouched.
The payment and availability of pensions has proven to be the most obvious touch point. Greece currently spends about 12 percent of its GDP on pensions, and if rules are not tightened around eligibility and pension payment amounts, this is expected to double to nearly one quarter of the current GDP by 2050.
Last week, proposals to raise the retirement age to 65 and force recipients to contribute for a minimum of 40 years to obtain a full pension, were tabled in the Greek parliament.
“These reforms are absolutely necessary for the country and people paying social security and pension contributions,” Labor Minister Andreas Loverdos told a news conference. “Our system had collapsed, and we have to rebuild it.”
Unmoved by the government’s argument that deficit reform is necessary, a seemingly daily stream of images of violent protests continues to fill news sites. Trade unions and other labor groups have vowed to pressure the government into reversing these early attempts to reign in spending. Given the depth of the issue, and the urgency with which the deficit must be tackled, I fear that this is only the start of what is sure to be a long, hot summer in Greece.
