Greece forecasts 4.5% economic contraction in 2013, pushing its debt to record 189.1% of GDP, downwardly revises primary budget surplus to 0.4% from 1.1%, as eurozone finance ministers discuss how to keep country afloat

BRUSSELS/ATHENS , October 31, 2012 () – Euro zone finance ministers conferred on how to keep Greece afloat as negotiations between Athens and its foreign lenders neared conclusion over reforms the country must implement to receive fresh emergency loans. Greece needs to push through spending cuts and tax measures worth 13.5 billion euros ($17.5 billion) as well as a raft of economic reforms to appease EU and IMF lenders and secure bailout money to avoid bankruptcy.

The ministers received more bad news just before their Wednesday conference call when Athens more than halved its forecast for a budget surplus before debt servicing costs next year, dimming one of its few bright spots as rounds of austerity deepen a recession already into its fifth year.

Athens forecast a 4.5 percent economic contraction in 2013, which will push its public debt pile to a record 189.1 percent of gross domestic product. The primary budget surplus is forecast to be just 0.4 percent, well down on the 1.1 percent pencilled in previously.

Greece's lenders are not discussing at present another debt write-off, or "haircut", Thomas Wieser, the coordinator of euro zone finance ministers said, but EU diplomats say other ways of stretching out official loans are on the table.

No decisions were expected from Wednesday's call, due to start at 1130 GMT, but euro zone ministers were debating the options ahead of a decisive meeting on Nov. 12.

Diplomats said they included lengthening the maturities and reducing the interest rate on existing loans, letting Greece buy back its own debt at a discount with borrowed money and allowing it to issue more short-term T-bills.

Wieser, an Austrian, told German radio he had taken part in discussions with officials from the "troika" of lenders -- the European Central Bank, European Commission and the International Monetary Fund -- in the past two days.

"In none of these rounds of discussions and negotiations was the word 'haircut' ever mentioned," Wieser said. "The negotiations are not yet complete," he added.

The troika is readying a report on Greek debt sustainability and pondering ways to plug a financing gap if Greece were to reach a primary surplus, which excludes interest payments, of 4.5 percent of GDP in 2016 rather than in 2014.

A troika estimate presented to junior euro zone finance ministers last week showed Greece would need an extra 30 billion euros ($39 billion) in funding over the two extra years.

Wieser said it would be "very, very tough" for Greece to reach the original target, given the depth of its recession, a view underscored by Wednesday's revised forecast.

The latest budget figures nonetheless confirm the country is on track to achieve a primary surplus for the first time since 2002, after a 1.5 percent deficit in 2012.

PASOK BACKS REFORMS

A deal on restarting the second bailout for Greece, stopped in June because the country was off track with reforms, hinges on the ruling coalition adopting strict labour market reforms.

An overwhelming majority of Socialist lawmakers agreed on Tuesday to vote in favour of the contested reforms, party officials told Reuters, sharply increasing the likelihood of the government winning a parliamentary vote which has become its biggest test since taking power in June.

After months of negotiations on the austerity plan, Prime Minister Antonis Samaras announced that talks had been completed and implored his allies to back the package.

The prime minister's New Democracy party and the Socialist PASOK have between them 160 deputies, nine more than they need for an absolute majority in parliament.

But the third party in the coalition, Democratic Left, refuses to back the proposed new labour laws which could tempt other deputies to defect and leave the government facing an unpredictable vote next week.

"What would happen if the deal isn't passed and the country is led to chaos?" Samaras said in a statement. "Such dangers must be avoided. That is the responsibility of each party and every lawmaker individually."

The Democratic Left party immediately responded by reiterating it would vote against measures which include scrapping automatic wage increases and cuts to severance payments.

MOVING TARGETS

The government included a large chunk of the austerity measures in the 2013 budget bill presented on Wednesday, with the remaining measures and labour reforms in a separate bill to be put to parliament on Monday.

Raising the pressure, Greece's two biggest labour unions called a 48-hour strike for Nov. 6-7 to protest against the latest wave of austerity measures.

The bickering among the coalition allies threatens to bring next week's vote down to a numbers game, undermining Samaras's pledge that Greece's government is committed to doing everything it can to restore credibility in the eyes of European partners.

The austerity bill could be defeated if more than 10 of the 33 PASOK lawmakers oppose them.

In a preliminary skirmish, the government narrowly won a vote on a privatisations bill on Wednesday, which could set the tone for the labour reforms vote next week.

The proposed law intends to scrap the government's obligation to own a minimum stake in a string of former state companies, but most Democatic Left lawmakers and several PASOK deputies voted against on the grounds that there should be more parliamentary oversight and that water and energy companies should not be sold off.

Highlighting persistent trouble in meeting its targets, the country's privatisation agency said on Tuesday it had slashed its revenue target to about 11 billion euros by the end of 2016, down from a previous target of about 19 billion euros by the end of 2015.

The lack of progress stems from the reluctance of Greek governments to sell off assets, political instability and the lack of investor interest in a country facing a grim economic future and the threat of an exit from the euro.

Despite public anger at the unpopular austerity measures, the budget is expected to pass in parliament since all three parties in the ruling coalition have agreed to back it.

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