Greece presents budget, revamps recession prediction

Greece presented an optimistic budget for 2016, predicting a recession milder than expected in previous forecasts.

The government also said that final numbers for 2015 would indicate the economy will have been flat for the full year, rather than the deep contraction of 2.3 per cent that had been expected. One reason is that the capital controls the government imposed on banks over the summer were less damaging to the Greek economy than had been feared.

And next year, the government said, the economy will shrink by only 0.7 per cent as it continues carrying out cost cuts required by its 86 billion euro, or $92 billion, international bailout package. As recently as last month, the government had predicted an economic contraction of 1.3 per cent in 2016.

The finance minister, Euclid Tsakalotos, presented the budget to Parliament, which is to vote on the package early next month. "The Greek economy endured, disproving disaster scenarios," according to a statement by the finance ministry that accompanied the budget.

The budget outlined a total of €5.7 billion in additional spending cuts and tax increases - with €1.5 billion of that still to come this year and the remaining €4.2 billion set for 2016. Some of the economic changes detailed in the document, including increases to taxes on farmers, have yet to be approved by the Greek Parliament.

On Thursday, lawmakers narrowly passed a package of economic changes required by international creditors to unlock up to €12 billion in loan money from the bailout program. The package, which includes a narrowing of the pool of home mortgage holders protected from foreclosure, and a new tax on gambling and wine, passed as expected. But it came at a political cost. Two legislators belonging to the coalition government, who refused to support to the bill, were ousted from their political parties. That reduced the government's majority in the 300-member Parliament to a precariously thin margin of only three seats. The defections were a sign of the challenge that the leftist prime minister Alexis Tsipras faces in maintaining unity in his coalition, while honouring the terms of the country's bailout.

The Eurogroup Working Group said that it had reached "a broad agreement" on measures, including those to shore up Greece's financial sector.