The Greek government said it passed a new budget backed by itsinternational creditors, including larger deficits than previouslyforecast, as the country moves closer to securing an 8 billion euro($10.7 billion) aid payout needed to avoid default.

Prime Minister George Papandreou's Cabinet also passed 6.6billion euros of austerity measures last night to cut the 2012deficit to 6.8 percent of gross domestic product, missing the 6.5percent goal previously set with the EU, International MonetaryFund and European Central Bank, known as the troika. FinanceMinister Evangelos Venizelos had previously said Greece would missthe targets and the troika accepted the new budget.

The new deficit numbers “should not derail Greece's currentnegotiations with the troika,” Geoffrey Yu, a currency strategistat UBS AG in London, wrote in a note to clients. “Greece pledged toundertake additional spending cuts in order to secure the next aidtranche. We remain of the view that Greece will ultimately receiveits current bailout tranche.

Greek bonds fell before European finance ministers gather todayto consider enhancements to the region's rescue fund. Papandreouadopted the austerity measures under pressure from the troika asthe country's three-year recession sapped the revenue needed toclose the fiscal gap. Euro region finance chiefs will meet again onOct. 13 to decide whether the austerity push is enough to win thesixth bailout payment.

'Dedication' to Goals
“Important decisions which need to be taken on a European leveldepend first and foremost on us,” Papandreou told his ministerslast night, according to an e-mailed statement from his office inAthens. “We need to show our dedication to reaching the goals.”

The yield on Greece's 10-year bond rose 17 basis points to 22.86percent and the two-year yield gained 71 basis points to 62.88percent. The euro fell 0.4 percent to $1.3333 as of 8 a.m. inLondon.

Greece's measures, which still require parliamentary approval,aim to secure disbursement of the 8 billion-euro loan payout thismonth and a second rescue of 109 billion euros agreed to by EUleaders on July 21. Under the proposals, the deficit this yearwould be 8.5 percent of GDP, compared with the 7.6 percent targetpreviously agreed with the troika.

Deficit Goals
Next year's gap is seen at 14.7billion euros, according to an e-mailed statement from the financeministry last night, that is less than the 14.9 billion-euro targetunder the previous pledge. The budget foresees a primary surplus of3.2 billion euros next year, or 1.5 percent of GDP, according tothe statement. The Finance Ministry said in a statement last nightthat the budget plan was “agreed with the troika.”

Greece's economy is forecast to shrink 5.5 percent this year,more than the 3.8 percent forecast by the EU and IMF in June,according to the statement.

Papandreou's Cabinet approved the austerity measures on the eveof a gathering of European finance ministers in Luxembourg today.The region's policy makers have been urged by counterparts aroundthe world to step up their response to the sovereign debt crisis,with U.S. Treasury Secretary Timothy F. Geithner saying last weekthat “it's time to move.”

Leveraging Fund
Bank of France GovernorChristian Noyer today said he's “open” to the idea of usingborrowed money to enhance the capabilities of the EuropeanFinancial Stability Facility, the region's temporary rescuemechanism that is due to finance the second Greek bailout.

“It would be unrealistic to expect an increase in the EFSFitself,” Noyer said in a speech in Tokyo. “But I am personally opento any scheme that would allow existing commitments to be leveragedto provide greater intervention capacity.”

The meeting was originally due to coincide with the payout ofthe sixth installment of Greece's original rescue. The payment beenput off until later in October as the troika gave Papandreou moretime to close the deficit gap. Papandreou announced last night thata special meeting of euro-region finance ministers would take placeon Oct. 13 to hear the results of the troika's review.

Firing Workers
The austerity measures weredetailed after the cabinet meeting last night, which also approvedthe 2012 budget and the plan to dismiss state workers. Thegovernment by December will identify 30,000 public workers who willbe put on reduced pay and either retire early or eventually befired. The plan aims to save 300 million from the government wagebill in 2012.

Inspectors from the troika returned to Athens on Sept. 29 toresume a quarterly review of the country's performance in meetingthe conditions of the original bailout. They suspended theinspection weeks earlier after finding that the government wasfailing to implement measures agreed to in exchange for continuedaid.

After the troika halted the review on Sept. 1, Finance MinisterEvangelos Venizelos introduced a series of measures to plug thebudget gap for 2011, including a new property tax approved byparliament on Sept. 27 and further cuts to pensions and wages forstate workers.

Bloomberg News

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