Greece to Seek Further EUR2 Billion in Budget Cuts - Source

By Nektaria Stamouli

The Wall Street Journal

ATHENS--Greece is seeking to slash government spending more drastically than previously announced to compensate for tax revenue that will probably be lost to austerity economics, a finance ministry official said Tuesday.

The government now wants to find 13.5 billion euros ($16.7 billion)in spending cuts over the next two years, or about EUR2 billion more than its previous target, according to the official.

Under the terms of its latest European Union and the International Monetary Fund loan deal, Greece is obliged to implement spending cuts of about 5.5% of gross domestic product, or about EUR11.5 billion, to narrow the budget gaps for 2013 and 2014, with the aim of reducing the budget deficit to below the 3% of the gross domestic product cap set by euro-zone rules.

Those cuts, which include reductions of pensions and public-sector wages, are expected to hurt consumer spending, shrinking demand for goods and services, and ultimately resulting in the government receiving about EUR2 billion less in social security contributions and tax revenue than without the cuts, said the official, who asked not to be identified.

"The finance ministry is preparing a package of 13.5 billion euros" of spending cuts, the finance ministry official told Dow Jones Newswires. "The effective savings from the austerity measures will be 11.5 billion euros."

The specifics of the cutbacks are expected to be ready before a delegation from the troika of creditors--the International Monetary Fund, the European Central Bank and the European Commission--return to Athens, Finance Minister Yiannis Stournaras said Monday.

The troika is expected to return to Athens around Sept. 5. The government is aiming to reach a deal on its cutbacks by Sept. 14, in time for an informal meeting of euro-zone finance ministers in Cyprus, where Greece's austerity efforts will be discussed.

Senior government officials have said reductions in public expenditure will include broad, politically sensitive cuts in pension benefits, wage reductions and public-sector layoffs.

Fully implementing the new budget cuts are seen as a quid pro quo for Greece's government to request a two-year extension, to 2016, in meeting its budget deficit targets.

The country's three-way coalition government, made up of the conservative New Democracy, socialist Pasok and small Democratic Left parties, hopes that by giving Greece more time, it will ease the pain of the country's adjustment program, which has pushed the economy into a recessionary tailspin. But it would also mean that international creditors would have to provide Greece with even more funds on top of the EUR173 billion bailout it has already has been pledged, provided it meets strict fiscal conditions.

So far, Germany, Europe's effective paymaster and Greece's biggest creditor country, has been cool to the idea of any extension, saying Athens must stick to its existing program.

The general outline of the latest cutbacks will be presented by Prime Minister Antonis Samaras on Wednesday to Luxembourg's Prime Minister Jean-Claude Juncker, who also chairs the Eurogroup, which includes finance ministers of euro-zone countries, when he arrive in Athens for a one-day visit.

On Friday, in his first high-level talks since he took office in June, Mr. Samaras will travel to Berlin to meet German Chancellor Angela Merkel and a day later in Paris he will meet French President Francois Hollande.

-Write to Nektaria Stamouli at nektaria.stamouli@dowjones.com

(Alkman Granitsas contributed to this article.)