BUSINESS
09/19/2011 07:30 EDT | Updated 11/19/2011 05:12 EST

Greece Debt Crisis: Primary Surplus Pledged In 2012

AP File

VOULIAGMENI, Greece - Greece's finance minister promised Monday to stick with his plan for the country to post a primary surplus in 2012 as the country's international creditors pressed for faster reforms and public sector staff cuts.

Evangelos Venizelos was due later Monday to take part in an emergency teleconference with debt inspectors that could go a long way to determining whether Greece avoids defaulting on its debts.

Ahead of the discussions, he said the target of generating more revenues next year than the country spends, before paying off interest on debts, remains despite the ongoing recession in the crisis-hit country.

Greece's economy is expected to contract by about 5.5 per cent this year and to shrink a further 2.5 per cent in 2012, according to government and IMF estimates.

Speaking at a conference south of Athens, Venizelos said the 2012 target was vital for Greece to avoid international "blackmail and humiliation" and came as markets continued to fret about the possibility of an imminent Greek default -- stock markets around the world were down sharply Monday.

"We are living though a recession that is unprecedented in recent decades. The recession ... will reach 5.5 per cent in (2011). It is the third straight year of recession and it will continue for a fourth, though significantly reduced," Venizelos said.

He said Greece planned to record a €3 billion ($4.1 billion) primary surplus in 2012. That compares with a primary deficit of €24 billion ($33 billion) in 2009.

"It is not rational or responsible to continue to increase the debt when our partners are helping us deal with the national debt," Venizelos said.

The Socialist government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 per cent of gross domestic product.

When it became obvious earlier this month that there was a more than €2 billion ($2.75 billion) shortfall in the budget, Greece's creditors threatened to withhold the sixth installment of a €110 billion rescue package agreed upon in May 2010.

Without the installment, worth €8 billion, Greece faces defaulting on its debts by mid-October.

A review by officials from the International Monetary Fund, the European Central Bank and the European Commission, collectively known as the 'troika,' was suspended earlier this month amid talk of missed targets.

The government hurriedly announced an extra property tax -- to be levied this year and next and charged through electricity bills to make it easier to collect -- in an attempt to raise enough to plug the gap.

But the news was greeted with an outcry from a public already reeling from salary cuts and the recession. State electricity company unionists also threatened to refuse to collect the taxes, and to prevent those who don't pay having their power supply cut off.

Venizelos said Sunday night that the backlash led to skepticism among Greece's creditors about whether the government would manage to raise the projected revenue.

The troika heads had been due to return to the country this week, but have stayed away and will hold a crucial teleconference with Venizelos later Monday instead.

"We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," said Amadeu Altafaj Tardio, a spokesman for the European Commission.

"Depending on what they say, (the troika) will decide on the resumption of the review mission," Altafaj Tardio said.

While technical staff from the troika have been back in Athens for about a week, trying to figure out whether the recently announced measures will be enough to meet the targets.

Altafaj Tardio said "it will be important to have the minister's take on that."

Prime Minister George Papandreou, who cancelled a scheduled trip to Washington and New York on Saturday to remain in Athens for a "critical week," has also called a government meeting.

Despite record unemployment, Greeks have been slapped with the emergency taxes this fall, further straining household budgets.

Venizelos acknowledged that the new levies were "deeply unfair" but said the country had little choice.

IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes, arguing that Athens should give up the "taboo" of firing public servants.

"I have compared Greece to a Mercedes that can go 120 kilometres per hour but is only going 40 because it has so much sludge in the engine," Traa told the conference.

He said Greece needed to speed up its reforms in tax collection and reducing the size of the overmanned public sector.

In an interview, Traa said Greece needed to implement key commitments including plans to slash 150,000 public sector positions by 2015.

"If you can do it (staff cuts) up front, you get over it much more quickly. Whether society can support that is a different issue," Traa told the AP. "Our experience is that ... if you do things gradually that may induce the public getting very tired. Adjustment fatigue is something that happens in every country."