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Greek prime minister: no new austerity measures

THESSALONIKI, Greece - The Greek government is planning no new austerity measures as part of efforts to pull the country out of debt and might even exit international supervision earlier than expected, the prime minister said Sunday.

THESSALONIKI, Greece - The Greek government is planning no new austerity measures as part of efforts to pull the country out of debt and might even exit international supervision earlier than expected, the prime minister said Sunday.

George Papandreou said Greece was on track to meet targets for reducing its deficit by nearly 40 per cent this year.

"We will not need any new measures," he said during a news conference a day after making his annual speech on the economy on the sidelines of a trade fair in northern Greece. Papandreou also reiterated that Athens did not plan to restructure its debt — a move that he said would have been "catastrophic."

In exchange for €110 billion ($140 billion) in rescue loans over three years from the International Monetary Fund and some EU countries, Greece has implemented strict fiscal control, seeking to reduce the budget deficit from a stunning 13.6 per cent of annual output in 2009 to 8.1 per cent this year.

The tough austerity measures, which included salary cuts and tax hikes, angered labour unions which have staged six general strikes this year and organized peaceful protests in Thessaloniki on Saturday.

But Papandreou pledged that successful implementation of his reform program would ease the pain. "The faster we proceed with our reforms, the sooner ... we will be able to restore and increase salaries and pensions," he said. "And that is our target."

Asked whether Greece might ask for an extension of the EU-IMF package beyond its 2013 end date, Papandreou said the government did not intend to ask for an extension, and could even leave the program early if good progress was made.

The year 2013 "is truly the end of this process," Papandreou said. "The faster we complete the major reforms in our country ... the sooner we will be able to exit these restrictions. That could even happen before 2013, provided we do well."

The government's main challenge now is to boost revenue, which is lagging behind targets, although the shortfall is offset by better than expected performance in spending cuts.

The Finance Ministry says net revenue increased 3.3 per cent in the first eight months of the year, against a target of 13.7 per cent for the year. However, spending fell by 12 per cent from January to August, compared with an end-year target of 5.8 per cent.

Papandreou acknowledged that revenue shortfall was a problem, but said that overall "we are ahead of our targets."

"I have every confidence that, by the end of the year ... we will have achieved the 40 per cent reduction of deficit," he said.

IMF and EU inspectors are due in Athens next week to review Greece's progress in overhauling its economy, while the country is due to receive a second installment of loans worth €9 billion ($11.45 billion).

Greece is relying on the loans to refinance its debt, as the interest rates demanded for its long-term government bonds on the international market are forbiddingly high. Investors are demanding about 9 per cent more interest for Greek 10-year government bonds than they do for the equivalent German benchmark bonds.

Papandreou said financial markets had reacted to Greece's troubles in a "mob-like" manner in keeping the country's borrowing costs so high, and that this showed the EU-IMF package was necessary to restore confidence in Greece's economy.

"I am confident that this confidence that is growing will have a strong impact on the markets" and therefore on bringing down borrowing costs, he said.

On Saturday night, Papandreou gave a speech on the economy, promising to cut the tax rate on companies' retained profits from 24 to 20 per cent next year to offer "a strong incentive for investments and competitiveness."

He also pledged this year to open up restricted professions — including truck drivers, notaries, taxi drivers and pharmacists — deregulate the energy market, settle on privatization targets, facilitate major investments and simplify business licensing procedures.

 
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