October 8, 2011
This summer the euro zone’s endless sovereign-debt crisis took a more dangerous turn, as the markets turned their guns on the Spanish and Italian economies. Neither country is out of the woods—this week Moody’s, a ratings agency, downgraded Italy’s debt—but attention has returned to the country where it all began last year: Greece.
The Greeks won some breathing-space this week, thanks to a last-minute fudge over next year’s budget agreed with the European Union and IMF “troika”. Yet it could prove short-lived. If property-owners fail to come up with at least €1.7 billion ($2.3 billion) in extra tax revenues by the end of the year, the budget deficit will rise above the new limit of 8.5% of GDP—already worse than the target set in last year’s bail-out agreement (see chart)—and derail next year’s projections. Evangelos Venizelos, the finance minister, speaks admiringly of the sacrifices Greeks have made, but warns that more is to come. His officials whisper that default is looming.
After merging this year’s missed budget targets with those of 2012 “to correct slippage”, as he puts it, Mr Venizelos hopes to achieve a fiscal tightening of €7.1 billion next year, and to rack up a primary budget surplus (ie, before interest payments) of €3.2 billion. But debt-servicing costs would still leave an overall deficit of 6.8% of GDP. Total debt will rise to 172% of GDP.
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