Greece promises primary surplus in 2012 (AP)

VOULIAGMENI, Greece – Greece's finance minister promised Monday to stick with his plan for the country to post a primary surplus in 2012, hours ahead of an emergency teleconference with creditors that could go a long way to determining whether Greece avoids defaulting on its debts.

Evangelos Venizelos' target of generating more revenues next year than the country spends, before paying off interest on debts, comes despite the ongoing recession in the crisis-hit country.

Greece's economy is expected to contract by about 5.5 percent this year and to shrink further next.

Speaking at a conference south of Athens, Venizelos said the 2012 target was vital for Greece to avoid international "blackmail and humiliation" and came as markets continued to fret about the possibility of an imminent Greek default — stock markets around the world were down sharply Monday.

"We are living though a recession that is unprecedented in recent decades. The recession ... will reach 5.5 percent in (2011). It is the third straight year of recession and it will continue for a fourth, though significantly reduced," Venizelos said.

He said Greece planned to record a euro3 billion ($4.1 billion) primary surplus in 2012. That compares with a primary deficit of euro24 billion ($33 billion) in 2009.

"It is not rational or responsible to continue to increase the debt when our partners are helping us deal with the national debt," Venizelos said.

The Socialist government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 percent of gross domestic product.

When it became obvious earlier this month that there was a more than euro2 billion ($2.75 billion) shortfall in the budget, Greece's creditors threatened to withhold the sixth installment of a euro110 billion rescue package agreed upon in May 2010.

Without the installment, worth euro8 billion, Greece faces defaulting on its debts by mid-October.

A review by officials from the International Monetary Fund, the European Central Bank and the European Commission, collectively known as the 'troika,' was suspended earlier this month amid talk of missed targets.

The government hurriedly announced an extra property tax — to be levied this year and next and charged through electricity bills to make it easier to collect — in an attempt to raise enough to plug the gap.

But the news was greeted with an outcry from a public already reeling from salary cuts and the recession. State electricity company unionists also threatened to refuse to collect the taxes, and to prevent those who don't pay having their power supply cut off.

Venizelos said Sunday night that the backlash led to skepticism among Greece's creditors about whether the government would manage to raise the projected revenue.

The troika heads had been due to return to the country this week, but have stayed away and will hold a crucial teleconference with Venizelos later Monday instead.

"We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," said Amadeu Altafaj Tardio, a spokesman for the European Commission.

"Depending on what they say, (the troika) will decide on the resumption of the review mission," Altafaj Tardio said.

Technical staff from the troika have been back in Athens for about a week, trying to figure out whether the recently announced measures will be enough to meet the targets.

Altafaj Tardio said "it will be important to have the minister's take on that."

Prime Minister George Papandreou, who canceled a scheduled trip to Washington and New York on Saturday to remain in Athens for a "critical week," has also called a government meeting.

Despite record unemployment, Greeks have been slapped with emergency taxes this fall, further straining household budgets.

Venizelos acknowledged that the new levies were "deeply unfair" but said the country had little choice.

IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes.

"I have compared Greece to a Mercedes that can go 120 kilometers per hour but is only going 40 because it has so much sludge in the engine," Traa told the conference.

He said Greece needed to speed up its reforms in tax collection and reducing the size of the overmanned public sector.

Income tax and sales tax rates should not be reduced until those reforms succeed, he argued.

"The authorities clearly need to guard against the program becoming imbalanced between revenues and spending," he said. "In our view, it should not result in higher and higher taxes on a limited tax base."

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Elena Becatoros in Athens and Gabriele Steinhauser in Brussels contributed.

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