Greece expects recession to deepen

Finance Ministry expects recession-hit economy to shrink between 4.5% and 5.3% this year


ATHENS, Greece (AP) ― Greece’s finance minister said Monday that the crisis-afflicted economy will shrink more than expected this year, putting further pressure on the country’s ambitious deficit-cutting effort.

Evangelos Venizelos said the ministry forecasts annual output to shrink in 2011 between 4.5 percent and 5.3 percent of Gross Domestic Product.

Venizelos had previously admitted that the recession might be over last year’s 4.5 percent, a whole percentage point worse than initially estimated. The government has forecast a timid return to growth in 2012, but that now seems very unrealistic.

“All the measures we are taking ... are aimed to stem the recession,” Venizelos said.

After living above its means for years until punishing interest rates forced it out of bond markets, Greece is now only kept solvent by a double rescue loan deal worth 220 billion euros ($317 billion) from its European partners and the International Monetary Fund.

In return, the Socialist government has promised to reduce a bloated budget deficit, sell 50 billion euros worth of state assets by 2015 and strictly abide by a highly unpopular austerity program that already has eaten deep into wages and pensions.

EU and IMF officials will be in Athens later this week to monitor progress ― on which continued disbursement of the rescue loans depends.

“We (are approaching) the last quarter, the budget must be executed, we must achieve our fiscal targets ― and this has become very difficult due to the deeper recession,” Venizelos told a news conference.

“There is undoubtedly a vicious cycle. We have been obliged over the past two years and in the coming three to implement a gigantic fiscal adjustment ... which has a negative impact on the real economy. But these are the terms under which we receive our loans and rescue packages.”

Venizelos said he will discuss the matter with the visiting European Union, European Central Bank and IMF representatives, also known as the “troika.” He stressed, however, that the previous recession estimates had been worked out in cooperation with troika officials.

The government has committed to cutting budget overspending from 10.5 percent of GDP in 2010 to 7.5 percent this year.

“We will see how the deeper recession affects the fiscal result,” Venizelos said. “If all the measures already voted through parliament are implemented, we will be within our targets ― or at least extremely close to our targets. And this is the basic issue we will discuss with the troika.”

Venizelos said Greece’s borrowing needs for September ― when the next batch of international loans must be released ― have been secured.

The year-and-a-half old austerity program, accompanied by unemployment approaching 17 percent and repeated tax hikes, has angered ordinary Greeks and unions, which have staged a series of general strikes.

Asked Monday whether Greek society could take new austerity measures, Venizelos said: “No, obviously.”

He also conceded by assuming the finance portfolio at the height of the crisis “I have most likely sacrificed whatever political prospects I had.”