Debt problems and recession of Greece is even worse than thought

Greece recession and debt problems even worse

The government faces anti-debt cancellation protesters as well as anti-austerity ones

31 October 2012 Last updated at 14:18

Greece’s draft budget for 2013 has forecast a deeper recession and worse debt problems than previously thought.

The economy is expected to shrink by 4.5% next year, and government debts to rise to 189% of economic output.

The Greek finance minister and his eurozone peers are trying to hammer out the economic reforms needed to release Greece’s next bailout funds.

But the government faces opposition from its coalition partners and a new general strike has been called.

Finance Minister Yannis Stournaras is holding a conference call with colleagues from the Eurogroup of eurozone finance ministers, as well as representatives of the International Monetary Fund and European Central Bank.

The package under discussion includes spending cuts to be included in the 2013 budget, labour market reforms and the privatisation of state assets.

The call, which began at 11.30 GMT, comes ahead of a formal Eurogroup meeting on 12 November that is expected to formally approve any deal.

Greek Prime Minister Antonis Samaras claimed on Tuesday that an agreement had already been reached, but this has since been denied by both the European Commission and the Eurogroup.

He has warned that Greece will run out of cash next month unless it receives 31.2bn euros in loans from the EU and IMF.

It was also denied by Mr Samaras’ junior coalition partner, the Democratic Left, who expressed concerns over labour market reforms that it said would weaken workers’ rights.

Parliament had been due to vote on a full package of reforms, including the budget, on Tuesday, but this has been delayed a week in light of the Democratic Left’s opposition.
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The budget includes 13.5bn euros ($17.4bn; £10.8bn) of cuts.

Greece’s two main trade unions have called a 48-hour general strike on 6-7 November to protest against the austerity package.

“The central aim and demand of the unions is the rejection [by parliament] of unacceptable, destructive and coercive measures imposed by the troika [the European Commission, IMF and ECB],” the GSEE union said.
Narrow vote

Mr Samaras is also seeking broader powers to privatise public services.

On Wednesday, parliament narrowly passed a privatisation bill that paves the way for the sell-off of state-owned utility companies.

The bill, which is one of the reform measures required by Greece’s troika of lenders, was passed by a majority of only 148 to 139 – even though the governing coalition is nominally supported by 176 deputies in the 300-seat parliament.

Some deputies from the government’s two left-wing junior coalition parties, Pasok and Democratic Left, voted against.

On Tuesday, the head of the Greek privatisations agency said that the target for total revenues from the sale of state assets – an element of its agreement with its lenders – had been lowered to 11bn euros by the end of 2016.

The previous target had been to achieve 19bn euros by 2015.

The Finance Minister, Mr Stournaras, announced the government’s latest growth and debt forecasts ahead of the vote.

He said that the economy is now expected to shrink 4.5% next year, instead of 3.8%.

If the forecast proves correct, it would mean that by the end of 2013 the Greek economy would have shrunk by a cumulative 22% since 2008, based on data from the EU’s statistical office, Eurostat.

Unemployment in Greece stands at 25% of the labour force, while across the eurozone it was revealed on Wednesday that unemployment had risen to 11.6% in September.

Government borrowing is expected to reach 5.2% of economic output in 2013 up from 4.2%, and total government debt to hit 189% instead of 179%.

The upwardly-revised deficit forecast would still mark an improvement on the 6.6% figure expected for this year.

The expected overspending in 2013 is entirely accounted for by the cost to the government of meeting interest payments on its existing debts.

Excluding these interest payments, the government actually expects to run a small net revenue surplus equal to 0.4% of Greek economic output.

Meanwhile, Thomas Wieser, who co-ordinates the Eurogroup of finance ministers, told German radio on Wednesday that the Greek government may be granted the extension of up to two years that Athens has asked for to implement its reform package.

A delay to spending cuts would necessitate even more borrowing by the government in order to cover its over-spending.

However, Mr Wieser said that this could be accommodated within the existing bailout programme.

He denied that it would be necessary for Greece to negotiate with its lenders a further partial cancellation, or “haircut”, of its existing debts – something that has been backed by the IMF.

“In none of these rounds of discussions and negotiations was the word ‘haircut’ ever mentioned,” he said.
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Who owes what to whom?

Private sector creditors agreed to write off approximately three-quarters of the money owed to them as a condition for Greece receiving its second bailout package earlier this year.

There has been speculation that Greece may be granted further alleviation of its debt repayment terms, perhaps via lower interest rates and more time to repay, and this time including debts it owes to public sector lenders such as the European Central Bank or the Eurozone bailout funds.

However, Germany’s Finance Minister Wolfgang Schaeuble has repeatedly opposed any cancellation of the money Greece owes to its bailout lenders, who ultimately include German taxpayers.

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