The Greek economy is on the verge of a 1930s-style Great Depression, as the Athens government predicts a 25% fall in gross domestic product by 2014.
This will put intense pressure on the European Union to relax the terms of the country’s €130-billion bailout package.
Greek Finance Minister Yannis Stournaras said a decline in tax revenue and spiralling unemployment would deepen the country’s four-year recession, which critics of the EU’s stance said could lead to a recession as long and as deep as the United States’s pre-war decline.
Stournaras, who is locked in negotiations over the terms of a second bailout, fears that efforts to revive the Greek economy will be undermined by a draconian austerity programme, early debt repayments and high interest rates on its loans.
“The cumulative reduction [of gross domestic product] since 2008 is just under 20% and is expected to reach 25% by 2014,” he told a Greek-Chinese business forum in Athens.
“The time frame for the adjustment, the conditions of the real economy should be taken into consideration,” he said. “Otherwise there is a great risk of prolonging the negative consequences for the economy and society.”
The finance minister made the plea after revealing that, although Greece would meet its nominal 2012 deficit-reduction targets, its primary deficit would reach 1.5% of GDP compared with the projected 1% following a sharp decline in the economy’s output.
Because of concern that the economic situation is deteriorating faster than expected in Greece, Spain and Portugal dragged down stock markets, which have rallied in recent weeks on better news from the eurozone and expectations, confirmed on September 14, that the Federal Reserve would inject more new money into the United States economy.
The FTSE 100 declined for a second day, to 5868, and the Dow Jones Industrial Average in New York was off 10 points at 13542 by mid-afternoon.
The Greek coalition government, led by rightwinger Antonis Samaras, is under pressure from left-of-centre parties and unions to win concessions on plans for 50 000 public-sector job cuts, tax rises and employment reforms applied to a second bailout by the EU, European Central Bank and International Monetary Fund, known as the “troika”.
Unions have called a strike for September 26 and several key MPs in the coalition have threatened to quit rather than implement the cuts.
Stournaras won the backing of the world’s major banks in the country’s efforts to win better terms after Charles Dallara, the managing director of the Institute of International Finance and the spokesman for Greece’s creditors’ said a commitment by Greece to make reforms should be rewarded immediately.
“Once that has been done and I am confident it will be done, Europe and the International Monetary Fund should move quickly to extend the adjustment period for at least two years and provide the modest additional financial support for that extension to be effective,” Dallara said. “Only about €15-billion to €20-billion is needed. This can easily be realised in part by reducing the interest rates on the loans which Europe and the IMF made to Greece to more concessional terms.”
Dallara said that the response to the Greek debt crisis placed too much emphasis on short-term austerity and not enough on improving the country’s longer-term competitiveness.
Officials in Brussels are keen to soften the troika’s attitude towards Greece to ease the sense of crisis and shore up fading support for key countries in the single currency. But the deep split between the north and south in the eurozone appeared to be as wide as ever after Austria and Finland repeated their insistence that Greece be made to implement the cuts agreed to under the original terms of the €130-billion bailout. – © Guardian News & Media 2012 .