Greek Budget Figures Complicate Bailout Efforts

Spiegel
October 3, 2011

The Greek economy is still shrinking -- and will continue to do so through next year, the country's Finance Ministry announced on Monday. In addition to missing its deficit targets, the continued contraction has multiplied doubts as to the wisdom of saving Greece at all.

Just last week, international markets were buoyed by hopes that Europe, finally, had decided to throw the kitchen sink at the euro crisis. On Thursday, Germany's parliament seemed to justify those hopes by approving its share of the expanded European Financial Stability Facility (EFSF).

What a difference a weekend makes. On Sunday, Greece announced that its 2011 budget deficit will be 8.5 percent of gross domestic product, well higher than the 7.6 percent it targeted last year as part of its ambitious plan to return to fiscal health. And on Monday, new figures indicate that the country's economy will contract by 2.5 percent in 2012 instead of the hoped for growth of 0.6 percent. Stock markets around the world plunged as a result.

The figures have been made public as officials in Athens struggle to put together a budget for 2012 amid growing doubts that the country will be able to avoid insolvency. The country is also anxiously awaiting a report by officials from the European Union, the European Central Bank and the International Monetary Fund -- a group known as the "troika" -- which will determine whether Athens is eligible for the next, €8 billion payment from the ongoing €110 billion bailout passed in 2010.

In an effort to satisfy austerity demands made by the troika, Greek Finance Minister Evangelos Venizelos announced this weekend that 30,000 public sector jobs were to be cut by Christmas. The cuts, Venizelos hopes, will help lower the country's budget deficit to 6.8 percent of GDP in 2012, which is still higher than the 6.5 percent originally envisioned. He also says that the move will return the budget to surplus status once debt-service payments are factored out.

"The 2012 budget completes an intense and difficult effort of fiscal adjustment, reaching a primary surplus of €3.2 billion in 2012 from a primary deficit of €24 billion in 2009," he said in a statement.

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