Greece on Monday pledged to cut next year's budget deficit faster than agreed in a 110 billion euro IMF/EU bailout deal, vowing another year of tough austerity to exit a debt crisis. The 2011 budget draft submitted to parliament foresees a 7 percent of GDP gap, compared to 7.8 percent in 2010 and a 7.6 percent of GDP target agreed for next year with international lenders, the International Monetary Fund and the EU.
More belt-tightening is expected as the heavily-indebted country continues to dig out of its debt crisis in hopes of eventually normalising borrowing costs which became prohibitive after last year's fiscal derailment and hurt the euro. One year after his socialist government won elections pledging to help the poor and tax the rich, it presented another tight budget sure to test social peace, while its hands are tied by international lenders.
Carrying one of the heaviest debt burdens in the euro zone, seen at 133 percent of GDP this year and 142 percent in 2011, Greece is keen to convince investors it is making solid progress in cutting deficits and pushing reforms as it aims for a return to capital markets for funding sometime in 2011.
The premium investors demand to hold 10-year Greek government paper over Bunds stood at 792 basis points late on Monday, 12 bps down from Friday's settlement after China pledged to buy Greek government bonds when Athens eventually resumes longer-term debt issuance.
Greece's borrowing costs hit more than 900 bps last month, but have eased somewhat, partly in response to investor acknowledgement that the Athens authorities look serious about sticking to fiscal discipline.
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