Greece pledges to cut spending, boost revenues

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ATHENS, Greece (AP) — Greece’s cabinet on Thursday approved an economic recovery plan meant to reduce profligate budget overspending to 2 percent of annual output in 2013, through spending cuts and a mainly tax-driven boost in state revenues.

Finance Minister George Papaconstantinou said the blueprint, meant to assuage Greece’s increasingly jittery European Union partners, will be submitted to the EU and the European Central Bank Friday.

“There is no question of the document’s rejection,” he told a press conference.

Papaconstantinou also promised further spending cuts and tax hikes if necessary.

“The (EU) asked us to have an alternative plan ready and we complied with this request,” Papaconstantinou said. “If additional measures are needed to meet our targets, those measures will be taken.”

The plan provides for a gradual reduction from 2012 in Greece’s crippling national debt — expected to reach 120.4 percent of GDP this year — while the deficit is set to first drop below the EU ceiling of 3 percent in 2012.

Greece is struggling to regain market credibility after sharply revising deficit forecasts and suffering a string of international credit rating downgrades.

But Papaconstantinou warned that it could take months to convince international markets — on which Greece depends for its borrowing — that the plan will work.

“The question of persuading the markets is not something that can be achieved from one day to the next,” he said. “Nothing that we announced today would have changed that. There will be a difficult period of adjustment … In six months, it will be more clear that this is not merely an exercise on paper.”

Papaconstantinou said the economy is expected to contract for a second year in 2010, before returning to growth in 2011.

“We believe this scenario is realistic … mainly because the reduction of the deficit by itself will have a stimulating effect on economic growth,” Papaconstantinou said.

The plan calls for a total €7.3 billion ($10.6 billion) boost in revenues this year, mostly through tax reform, and a crackdown on tax and social security cheats. At the same time, spending will be reduced by €3.7 billion ($5.4 billion) — more than a third of which will be saved in state hospital spending.