Greek official: EU inspectors skeptical on deficit cuts

EU inspectors visiting Athens expect declining gross domestic product and high borrowing costs will make it hard for Greece to meet its deficit-cutting targets this year, a senior Greek finance ministry official said on Thursday.

"Negotiations (on measures to cut Greece's deficit) are continuing because they see a big slippage in targets," said the Greek official, who declined to be named.

The EU inspectors expected Greece would only be able to cut its deficit-to-GDP ratio by 1.5-2.0 percentage points versus a 4 percentage points target this year, he said.

That would mean Greece would need to find another 4.8 billion euros ($6.47 billion) worth of savings to meet its target.

A team of European Commission, European Central Bank and IMF inspectors are visiting Athens this week to assess Greece's progress in dealing with its debt crisis before Greece reports on its progress to the European Commission in mid-March.

Greece's economy contracted more than expected in the fourth quarter and the inspectors believe a weak economy and high borrowing costs will affect Athens' ability to cut its deficit, the Greek official said.

They also say that a low level of absorption of EU funds and an overly optimistic expectation for revenues from figthing tax evasion will make it hard to meet the deficit reduction target.

The official said Athens would announce any extra measures to reach targets after the inspection and a visit by European Economic Affairs Commissioner Olli Rehn next week.

Greece shocked markets and EU policymakers when it announced in October that its 2009 budget deficit had spiralled to 12.7 percent of GDP, raising questions about its ability to service its debt.

It has since pledged to cut its deficit by 4 percentage points this year and bring it down to under 3 percent of GDP by 2012.

But the plan has failed to convince markets and many EU finance ministers, who believe more measures will be needed to reach the targets.