World - Greece Forecasts Economic Contraction to be Worse than Expected

Greece Forecasts Economic Contraction to be Worse than Expected
Vittorio Hernandez

Athens, Greece

Greek Finance Minister Evangelos Venizelos reported that the country's economic contraction would be worse than expected.

Venizelos last year predicted a slow return to growth in 2012. However, given the gloomy outlook for the rest of the year, he admitted that it would be an unrealistic expectation.

The Greek economy contracted last year by 4.5 percent. For the first quarter of 2011, the country's economy contracted by 8.1 percent compared to the same quarter in 2010.

According to Venizelos, Greece has to make a drastic transition from a budget deficit of 15.5 percent of GDP in 2009 to surplus in 2012. To achieve that, he said the Greek economy must initiate programs through fiscal measures while pursuing growth.

The International Monetary Fund and European Union had extended Athens two rescue packages totaling $317.8 billion (EUR 220 billion) to prevent a default on its debt. In exchange for the bailouts, the Greek government agreed to reduce its budget deficit, sell $72.3 billion (EUR 50 billion) worth of state assets by 2015, and put in place austerity measures, which have been protested by Greeks.

Greece's budget deficit went up by almost 30 percent in the first half of 2011, but it could have gone up to 60 percent were it not for cuts in public investments made by the previous finance minister. Athens aims to reduce this year's budget gap to 7.5 percent of the country's GDP, which would have grown to 13.5 percent were it not for the unpopular cost-cutting measures put in place by the government.

Because of fears in the eurozone that the debt contagion would also hit Italy and Spain, there is speculation that Greece's second bailout will be the last. It is apparently one of the reasons why Prime Minister George Papandreou ordered the cabinet to fast track the reforms.

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