Greek crisis budget heads for parliament vote

(ATHENS) - Greece was to adopt a crisis budget on Wednesday in a bid to bring order to its chaotic public finances and restore its badly dented credibility with foreign investors and the European Union.

The ruling Socialists, who hold a 10-seat edge in the 300-seat parliament, are expected to carry the midnight vote on the 2010 plan aiming to cut Greece's 30.5-billion-euro public deficit by 8.4 billion euros (12 billion dollars).

The Socialists, elected in October on an economy rescue ticket, have already warned that the 2010 budget is the nation's "toughest" since the restoration of democracy in 1974 after seven years of military rule.

The government is struggling to restore investor confidence and muster funds to service an estimated 300-billion-euro debt following three successive downgrades from international credit rating agencies this month.

The budget aims to reduce the deficit from 12.7 percent of output to 9.1 percent in 2010, which would still exceed the limit of 3.0 percent for countries that use the single European currency.

But the government has already promised to aim for a bolder deficit cut to 8.7 percent of output next year.

Public coffers face a major drain from state hospital debts -- estimated at 6.3 billion euros -- and pension funds sapped by Greece's aging population and widespread social contribution avoidance.

"Unless this course is checked we'll need loans in May to pay pensions and other benefits," deputy labour minister George Koutroumanis told deputies.

The government also plans to borrow up to 53 billion euros in 2010 and expects to fork out 12.95 billion euros -- or 5.3 percent of output -- in interest payments next year to service the debt.

Greek Prime Minister George Papandreou is under pressure from his own party to honour pre-election promises to revitalise the economy and protect the poor from the effects of the crisis.

The Socialists pledged to cut waste in the bloated Greek civil service and public sector and boost revenue through a crackdown on entrenched tax evasion.

But the markets have shown little inclination to wait for reforms that successive Greek governments have promised yet failed to implement.

And Greece's European Union peers are also losing patience with Athens, which revised crucial economic figures twice in the last five years.

"Our credibility deficit is more important than the deficit in our public finances," Finance Minister George Papaconstantinou told parliament this week.

"People just don't believe us. 'We've heard the same talk for five years', they say," the minister added.

Fears for Greece's ability to keep up with its massive debt mounted this month after a solvency scare in the once-flourishing Gulf emirate of Dubai.

Questions also arose about possible implications for the broader eurozone, where several other countries are struggling with debt.

Mindful also of the reaction that austerity plans are likely to get from Greece's powerful unions, the three main credit rating agencies have shown their concern by cutting the country's sovereign debt grade.

Fitch and S&P lowered Greece's rating to BBB-plus from A-minus earlier this month. On Tuesday, Moody's completed the triple downgrade with another one-notch cut from A1 to A2.

Greece still has room for manoeuvre as the European Central Bank eased its rating requirements for government bonds in the wake of the global financial crisis, but the ECB is expected to restore the minimum A-minus level in 2011.

The Bank of Greece on Wednesday said the nation's lenders -- which had limited exposure to toxic investments -- had shown "remarkable resilience" even in the darkest days of the economic crisis.

But it warned Greek banks to keep a capital margin above minimum requirements given the economic slowdown, whilst limiting their "liquidity dependence" on the ECB.

Greece's second-largest union ADEDY that represents some 200,000 civil servants said it would strike in late January or early February to defend its members' benefits which the government is targeting for cuts.

The government's new tax plans are expected to be finalised at that time.

The opposition Conservatives, who were in power for the last five years, say the government lacks a coherent plan and wasted precious time after winning a snap election in October called by former PM Costas Karamanlis.

New Conservative leader Antonis Samaras, who replaced Karamanlis after the election defeat, will head the attack on the government in closing remarks capping the five-day parliament debate later Wednesday.