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Greek govt budget predicts lower deficit next year
Greek 2012 budget shows deficit projected at 5.4 pct next year but recession to continue
By The Associated Press

ATHENS, Greece (AP) ' Finance Minister Evangelos Venizelos has submitted Greece's 2012 budget, which projects the budget deficit to contract from 9 percent of gross domestic product this year to 5.4 percent next year.

The country will remain in recession, according to the budget submitted Friday. But it will also post a primary surplus ' a budget surplus when not counting interest rate payments on outstanding debt ' of 1.1 percent of GDP next year.

Gripped by a vicious financial crisis since last year, the government has imposed a series of harsh austerity measures, including salary and pension cuts and increased taxes. This has led to unemployment shooting up, with the jobless figure projected at 15.4 percent this year, and rising to 17.1 percent in 2012.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

ATHENS, Greece (AP) ' New Greek Prime Minister Lucas Papademos is chairing a cabinet meeting on the debt-crippled country's austerity budget for next year, which will be tabled in parliament later Friday.

Greece has said that for the first time in years the state will earn more than it spends in 2012, excluding the cost of servicing its vast debt. The country has been surviving on international rescue loans since May last year' agreed in return for deeply resented austerity measures.

But as the economy heads for a fourth year of recession, which could see an economic contraction of over 5.5 percent in 2011, taming the deeply ingrained urge to overspend will be a hard task.

This year's budget deficit, initially forecast to reach 7.3 percent of annual output, is now expected to hit 9 percent due to a deeper than expected recession, inept tax-collecting and lagging structural reforms.

For 2012, the forecast is around 7 percent of gross domestic product, with an ultimate target of one percent in 2015. The public debt is expected to reach 173 percent of GDP, which is forecast to shrink to euro215 billion ($290 billion).

However, those figures do not take into account the potential effects of a debt writedown that is under negotiation as part of Greece's second international bailout, agreed on last month. The euro130 billion deal includes provisions for banks and other private holders of Greek bonds to write off 50 percent of their Greek debt holdings ' potentially cutting the country's debt by euro100 billion.

After its borrowing costs ballooned in 2010, Greece turned to its European partners and the International Monetary Fund, winning an initial euro110 billion ($148 billion) bailout in return for an austerity package to cut deficits bloated by years of government overspending.

It eventually became clear that the rescue loans were not enough, and European leaders agreed on the second bailout last month. But the details of the debt writedown have not been settled and are under negotiation.

Papademos, a former central banker, leads a coalition government formed following laborious power-sharing talks. The government, which is only expected to last until elections in February, won a confidence vote this week with a mandate to save Greece from bankruptcy by securing continued payment of the rescue loans, approve last month's bailout deal and implement sweeping reforms.

Greek officials say a team of debt inspectors from the European Union, the European Central Bank and the IMF is expected in Athens later Friday, for talks on releasing the vital euro8 billion rescue loan installment, without which Greece will go bankrupt before Christmas.

Also Friday, Papademos will meet Bank of Greece governor George Provopoulos.

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