There must be “something rotten in the state” of… Greece. While austerity measures drain the Greeks, freeze the market and deepen the recession, the government seems unable to take control of its expenses or to raise revenues due to … the recession. The State Deficit amounts to €18,086 million in January-August 2011, according to Greek Finance Ministry, against the new target of €18,974 million, after the revision of the medium-term fiscal strategy. The deficit was €14,813 million in the corresponding period last year.
Here is the Greek Finance Ministry statement:
Total revenues increased by €125 million, while total expenditure reduced by €763 million.
“Net revenue amounted to €30,694 million. The shortfall was mainly due to higher than expected recession, non-resumption of road tax revenues, reduced tax revenues, reduced income and increased tax refunds.
Expenditure is increased by 8.1%, compared with 2010. The increase was primarily due to increased interest expenses, increased subsidies to insurance funds, payments of unemployment benefits, healthcare expenditure.
These figures relate only to the execution of State Budget and not all the financial data for the general government deficit.”
Greek PM’s unofficial counselor on economic issues, Nobel laureate Joseph Stiglitz, criticized the austerity measures stressing that they lead to deeper recession. Speaking to private television channel Skai TV, Stiglitz said: “Austerity is not the answer to the needs of fiscal stability. Greece’s austerity policy has negative results, the economy sinks and the recession deepens.”
At the same time, we read in the press, primarily in the international one, that a Greek default is inevitable. Can the additional austerity measures prevent it? Here is a commentary by Greek economic news portal Capital.gr
Do New Measures Rule Out A Default?
Next week the Greek government could answer whether the new austerity package would be sufficient to ensure the release of the sixth instalment and avoid (or postpone) default.
The big question for both government officials and EU executives is whether the external conditions, ie larger than expected slowdown in the Eurozone, would affect the recessionary course of the Greek economy, which is unofficially estimated to exceed 5.5%.
A EU official, which has cooperated with the Task Force that was established a year ago to examine the Greek problem, told Capital.gr that “the Eurozone and the U.S. are facing an extremely difficult situation that requires extraordinary measures to deal decisively. The Greek case is no longer certain that it could be addressed by the kinds of measures that have been launched for over a year.”
European Commission seems now to focus on the double problem of the debt and financial crisis, a combination that worsens the prospects for recession in the Eurozone.
This assessment will be presented to the IMF conference, while its leadership has already warned that U.S. and Europe face a second round of recession with unpredictable consequences, as now, unlike 2008-2009, unemployment rate is already high and governments have exhausted many of the fiscal and monetary tools available.
In other words, the succession of sharp cuts in public expenditure in Greece could be to no avail because of the global debt crisis and recession, without dealing with the danger of internal or external default.
On Wednesday, European Council President Herman Van Rompuy said in New York that the cost of an accident in Greece could be uncontrollable and the contagion risk from any such default would be too great. (source: capital.gr )
Good to know, that a “selective default” won’t affect people’s bank savings, a Greek banker told me yesterday….. Is it so?