Greece says no budget slippage, concerned by yields

Prime Minister of Greece George Papandreou in Washington March 9, 2010.

ATHENS (Reuters) - Greece is ahead of schedule with plans to tame its budget deficit and there has been no slippage in moves to rein in spending, the government said in a report submitted to the European Union.

The report, published on Wednesday, did identify risks, however, pointing to a deteriorating macroecnomic environment and stubbornly high yields on Greek government bonds.

"The persistence of very high yields on government bonds will probably lead to a revision in the budgeted interest payments for the debt in 2010. In this regard, additional expenditures in interest payments will be required," the report said.

The report said implementation of the stability and growth plan to cut the budget deficit to 2.8 percent of GDP by 2012 from close to 13 percent last year was ahead of schedule with no slippage on the spending side. The plan was endorsed by the European Commission early last month.

It said, however, that a 2009 base year revision was expected to contract real GDP more than the 0.3 percent already forecast for this year, with the carry-over effect seen at -0.9 percent.

"There is little doubt that the reduction of the disposable income of households, linked to the reduction in wages and salaries of the public sector employees and the worsening macroeconomic environment, is likely to reduce real consumption expenditures in 2010," it added.

The downturn at home will be partly mitigated by a more robust recovery in the global economy, which will help improve the country's external balance more than forecast in the stability plan.

"Overall, the external sector is projected to have a positive contribution to GDP growth on both the export side as well as the import side. The latter is likely to contract due to the restrictive fiscal and income measures introduced over the last couple of months," the report said.

To access the report click on: here me_2005-8/2010_03_08_SGP_report_8March.pdf

(Reporting by George Georgiopoulos and Lefteris Papadimas; editing by Stephen Nisbet)

(For more news on Reuters Money visit www.reutersmoney.in)