Greece's Prime Minister Papandreou
Greece's Prime Minister Papandreou Reuters

Debt-stricken Greece announced on Monday its budget deficit will contract to 9.4 percent of the GDP this year and said the country has been able to manage a much greater pruning of its deficit than initially calculated, immediately after the European Union Statistical agency revised upwards the country's 2009 deficit to 15. 4 percent.

In Ireland, the government insisted over the weekend that the country doesn’t need a bailout by the European Financial Stability Facility but said it is in talks with the European officials about current “market conditions”, suggesting Dublin is talking down speculation that it is on the cusp of requesting financial help.

Such a line is hardly a surprise. After all, earlier this year, Greece adopted a similar tactic right up until it formally asked for international assistance,” Capital Economics' European economist Ben May wrote in a note on Monday.

“With reports also suggesting that Ireland may bring forward its Budget, which is scheduled for 7th December, it seems that pressure from markets may prompt Ireland to seek help sooner, rather than later, despite its large cash balances.

The upward revision of Greece’s 2009 budget gap, which was almost two percentage points higher than the previous estimate, will expectedly put pressure on Greece as it negotiates with the International Monetary Fund (IMF) and the European Union as doubts have grown if Athens will be able to meet its deficit reduction targets going forward.

The latest upward revisions to the Greek budget deficit figures emphasize the enormous task that Greece faces to get its public finances back on an even keel, wrote May.

The 2009 public debt figure was also revised upward from 115 percent of the GDP to 127 percent, leading to a further ballooning of the deficit figure.

The finance ministry said in a statement on Monday the deficit reduction estimated for this year has gone beyond the target. Despite the data revision, the deficit reduction in 2010 is larger than initially targeted; six percentage points of GDP against a targeted reduction of 5.5 percentage points.

A 9.4 percent cut in spending will result in savings in excess of 14 billion euro, compared to 2009.
However, May says that even with 9.4 percent reduction in deficits this year, the country's debt will climb to 144 percent of the GDP.

Further measures will therefore be needed to ensure that the Greece meets its 2011 deficit goal of 7.6% of GDP, one of the conditions attached to its rescue package, he said.

Officials from the IMF and the EU are in the capital to review the progress of Athens in meeting deficit targets and take a call on disbursing another tranche of the bailout money.

Greece fought off a near certain default scare in May this year with the help of the IMF and the EU which offered 110 billion euro to lift Athens from the pits as it looked like the credibility, and even the future, of the European common currency looked threatened. Athens agreed to implement a multi-year austerity program in lieu of the rescue package.

Sequential reduction in deficit was a major clause of the loan deal, and Athens is required to cut its budget deficit to 8.1 percent of the GDP this year and to 7.6 percent in 2011. However, a drop in tax revenues has raised fears that Athens will miss this target by as much as 2 billion euro this year.

On Sunday, a Greek official speaking to the Wall Street Journal said the county faced fresh pressures from the donors and said the government, which faced violent protests over the austerity measures, will have to press head with more such unpopular spending cuts, but would avoid hurting workers further.

The only way this can be achieved is through further cuts in salaries and pensions or higher taxes and this out of the question if we are to avoid social unrest. The wage earners and pensioners have suffered enough, the official was quoted by WSJ.

Prime Minister George Papandreou ruled out on Saturday sacking public servants and raising taxes, but said he would target wasteful spending.