A planned debt swap with private bondholders can reduce Greece's 2012 budget deficit by more than a third from this year's level to 5.4 percent of GDP if it goes ahead as planned, a final budget draft showed on Friday.
Under the guidance of its international bailout lenders, the European Union and the International Monetary Fund, Athens is struggling to rein in its public debt and fiscal deficit to avoid bankruptcy and a possible exit from the euro.
Part of that effort is a plan to cut Greece's privately held debt load in half, which the budget draft said would entail swapping 200 billion euros (170 billion pounds) in existing bonds with 70 billion euros in new paper and a 30 billion euro payment in cash to creditors who take part.
Excluding the effects of the debt swap, the budget draft predicted the country's fiscal gap would fall to 6.7 percent of gross domestic product next year, from 9 percent in 2011.
After a historical course of steady increase of public debt, now this will be reversed, Finance Minister Evangelos Venizelos told lawmakers as he presented it to parliament.
Now the course is that of reducing public debt and removing the burden from Greeks' backs.
Lawmakers will begin debating the budget draft at committee level next week and will then be approved by a plenary session of parliament at a date yet to be set.
Parliament approved a new national unity government led by technocrat Prime Minister Lucas Papademos in a vote of confidence two days ago. Venizelos kept the portfolio he had held in the previous Socialist administration.
The new cabinet is aiming for a primary budget surplus -- with revenues exceeding spending when debt maintenance costs are excluded -- next year so it can start chipping away at its debt load which, without the swap deal, is estimated to reach almost 200 percent of gross domestic product next year.
To do that, Papademos's government must tackle rampant tax evasion, start selling off billions of euros worth of inefficient public companies and lay off public workers - all reforms planned but never executed by its Socialist predecessor.
The budget also forecast that a recession expected to enter a fifth year in 2012 would slow to an economic contraction of 2.8 percent, versus an expected 5.5 percent this year.
(Reporting by Harry Papachristou and Renee Maltezou; Writing by Michael Winfrey; Editing by Ruth Pitchford)