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Greece unveils debt crisis plan

January 14, 2010 | AFP

Greece on Thursday unveiled a blueprint for spending cuts aimed at solving a debt crisis that has shaken the eurozone as the government prepares to present the plan to the European Commission.

The three-year plan aims to rein in the country's runaway public deficit and bring it under the limits imposed for countries sharing the euro currency by 2012, Prime Minister George Papandreou said.

"Our three-year effort will be decisive for the future of the country," Papandreou told a cabinet meeting on the crisis programme which European authorities have requested. "We want to turn the page as fast as possible."

The plan is to be presented to European officials on Friday for approval.

"We have defied predictions in the past, we will do it again today," he said. "I am sure that our European partners will appreciate our efforts, not only from a government but from an entire population."

Finance Minister George Papaconstantinou described the Greek plan as a "roadmap" to overcome "great obstacles" and reverse the "huge credibility gap" that Greece is facing in the financial markets.

The crisis plan aims to reduce the public deficit to 2.8 percent of gross domestic product by 2012, under the 3.0 percent limit for countries sharing the euro currency, he said. The deficit reached 12.7 percent of GDP last year.

The programme seeks to stabilise Greece's debt burden -- one of the highest in the eurozone -- and reduce it to 117.7 percent of GDP by 2012.

The programme also forecasts an economic contraction of 0.3 percent in 2010. It foresees a return to growth of 1.5 percent in 2011 and 1.9 percent in 2012.

The government intends to boost its revenue by overhauling the tax system, according to a copy of the plan released to reporters.

It has invited a team of International Monetary Fund experts to discuss the prospect of technical assistance on tax policy and budget monitoring.

The Socialist government also plans a spate of spending cuts, including a civil service hiring freeze in 2010, a 10-percent cut in ministry spending and salary limitations on highly-paid public sector workers.

The proposed cuts have riled the country's civil servant association ADEDY which has called for a 24-hour strike next month.

The government has also pledged to restore credibility to its official statistics by boosting the independence of the national statistics service.

Greece late last year caused an uproar in Brussels by announcing that the previous Conservative administration had under-reported deficit.

For over 10 years, and thanks to the euro, Greece had notched high growth rates with demand largely fed by easy access to loans, the finance ministry said on Thursday.

The country had also ran twin public and current account deficits and failed to impose a tight fiscal discipline, the ministry said.

Across Europe, there is concern that serious fiscal problems in Greece and elsewhere threaten the credibility of the eurozone and could be a precursor to similar debt crises in other European economies.

"In the recent past, we ourselves gave reason (for mistrust) and it is up to us to restore our country's reputation again," Papandreou told a news conference on Wednesday.

Greek officials concede that Athens still has a mountain to climb to regain credibility and analysts are still sceptical that Greek plans will work.

"The further details provided by the Greek government today on how it plans to tackle the fiscal crisis are unlikely to reassure the markets much," Capital Economics European economist Ben May said in a note.

"Its fairly optimistic forecasts for the economy to shrink by 0.3% this year, expand by 1.5% in 2011 and pick up thereafter, suggest that it is relying on a cyclical upturn to do much of the work," he said.

On Thursday, the Greek statistics service said unemployment in the country had risen to 9.8 percent in October 2009 from 9.1 percent a month earlier.

Greece's woes were set to dominate a meeting of European Central Bank governors on Thursday that was nominally supposed to focus on interest rates.

Athens is not the only eurozone capital causing alarm in Frankfurt however.

The credit rating agency Moody's has warned that Portugal's economy also faces a "slow death" unless it becomes more competitive and officials collect more tax revenues.

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