Uphill struggle to patch Greek budget holes

Financial Times

September 15, 2011

Greece’s finance minister has the unenviable task of patching up a budget that springs a gaping new hole every few weeks.

Evangelos Venizelos must also contend with turbulent capital markets and tightening scrutiny by international lenders as he casts around for solutions to ensure the release of a fresh €8bn loan tranche, which Athens says it needs by the end of the month to enable it to pay salaries and pensions.

Yet even if the European Union and International Monetary Fund pay up as expected, the funds may still not be enough to keep the country afloat.

The budget deficit is set to reach 8.1-8.2 per cent of gross domestic product this year, compared with an initial target of 7.4 per cent, according to revised projections by the finance ministry and IMF.

Some private sector economists believe the deficit could hit 10 per cent of GDP – only marginally down from last year’s 10.5 per cent – leaving a potential funding shortfall of more than €4bn that Greece’s European partners would be asked to cover as part of the country’s second bail-out.

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