Greece on course to miss deficit targets in bankruptcy fight

Greece will miss deficit targets set just months ago in a massive bailout package, the country’s finance ministry confirmed last night in a setback to Europe’s efforts to stave off the country’s bankruptcy.

The dire report comes while inspectors from the International Monetary Fund, European Union and European Central Bank, known as the troika, are in Athens scouring the country’s books to decide whether to approve a loan tranche, without which Greece could run out of cash this month.

The budget deficit will reach 8.5 per cent of GDP this year, missing a 7.6 per cent target. It will be brought down to 6.8 per cent of GDP next year but will still miss the bailout target of 6.5 per cent of GDP.

“Three critical months remain to finish 2011, and the final estimate of 8.5 per cent of GDP deficit can be achieved if the state mechanism and citizens respond accordingly,” the finance ministry said in a statement.

EU officials say the troika’s assessment of Greece’s future prospects could determine whether it needs to demand more debt relief from private creditors.

European officials are scrambling to avert an abrupt Greek bankruptcy, which would wreck the balance sheets of European banks, jeopardise the future of the single currency and potentially plunge the world into a new global financial crisis.

The shortfall in the 2011 deficit target means Greece would need almost �2 billion extra just to finance its expenses for this year. It also means emergency tax hikes and wage cuts announced in the past two months to hit the target have not been enough to put Greece’s finances back on track.

To persuade the troika to release the loans, Greece has promised to raise taxes, cut state wages and speed up plans to reduce the number of public sector workers by a fifth by 2015.

The government was also expected to approve a plan to begin the public sector layoffs this year, arguably the most contentious part of its deeply unpopular austerity plans in a country where the constitution bans firing state workers.

The austerity measures are deeply unpopular, and public sector unions hope that strikes and demonstrations can wreck the Socialist government’s resolve to enact them.

The government has a majority of just four seats in parliament and could be forced into elections if a handful of MPs balk.

Meanwhile, it has emerged that German Chancellor Angela Merkel’s right-hand man hurled expletives in public at a respected party ally who voted against giving more powers to the euro- zone rescue fund.

Ronald Pofalla, Mrs Merkel’s chief of staff, was lambasted by leaders in the Christian Democrats and their Free Democrats coalition partners for a public haranguing of Wolfgang Bosbach, a respected conservative MP.

“I can’t stand the sight of your stupid face any more,” Mr Pofalla shouted in a hallway before a crucial vote in parliament on Thursday, according to an account in the Bild am Sonntag newspaper. “You’re making everyone crazy with your s**t.”