Greece announces new austerity measures

Greece"s Finance Minister George Papaconstantinou
Image caption Greece's finance minister George Papaconstantinou plans to cut his country's budget deficit even further

The Greek government has announced new, tougher, austerity measures in its 2011 draft budget.

The government said it would reduce the budget deficit below the target set by the International Monetary Fund (IMF) and eurozone countries earlier this year when they bailed Greece out.

The new target will require new taxes and a higher rate of VAT, going beyond the cuts already announced this year.

The aim is to convince investors that Greece's finances are under control.

New austerity measures will affect profitable businesses as well as consumers through new property and gambling taxes.

The budget also plans to raise 1bn euros of additional revenue in VAT, but it does not specify which products or services will be taxed at higher rates.

Earlier this year, austerity measures brought in by the government led to violent protests on the streets of Athens.

Restoring confidence

Greece is trying to reduce its heavy debt burden, expected to be the highest in the eurozone this year at 133% of gross domestic product, in order to convince investors that its debt crisis is over.

The government plans to reduce its budget deficit to 7% of GDP by the end of 2011, below the 7.6% target set by eurozone countries and the IMF in their bail-out package of the country in May this year.

Since investors lost confidence in the country, prohibitive borrowing costs have kept Greece away from issuing bonds but the country aims to return to the capital markets for funding sometime next year.

On Saturday, Chinese Premier Wen Jiabao said China would buy an unspecified amount of Greek government bonds when Athens resumes long-term debt issuance.

So far there are signs that investor confidence has started to return, with Greek borrowing costs down by over 10% in the last month.

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