Greece to cut 2011 deficit to 7.4%

Greece’s government plans to slash the budget shortfall by ¤5 billion ($6.8 billion) next year by cutting state spending and increasing sales taxes to meet targets under a European Union-led rescue.

The deficit will decline to 7.4 per cent of gross domestic product, or ¤17 billion, from 9.4 per cent of GDP this year, according to an e-mailed statement from the Athens-based Finance Ministry today. That compares with a target of 7.6 per cent under the May agreement with the EU and the International Monetary Fund to secure ¤110 billion in emergency loans.

The economy is forecast to shrink 4.2 per cent this year, and another 3 per cent next year, deeper contractions than originally forecast in May.

Prime Minister George Papandreou’s efforts to reduce the shortfall are being hampered as revenue growth slows and after the EU increased its estimate for the country’s deficit in 2009 to 15.4 per cent, the largest in the euro’s history. Greece raised its deficit forecast amid calls from European officials to do more to meet targets agreed in the EU-led bailout that saved it from default.

Repeated revisions of Greece’s budget figures, beginning after Papandreou revealed last year that the gap was twice a previous forecast, spurred a surge in borrowing costs that pushed the country to the brink of default and triggered a region-wide debt crisis.