Greek economy may shrink more than 5% this fiscal, says finance minister

Greek Economy will Shrink More than Anticipated This Year, Said The Finance Minister

Greek Economy will Shrink More than Anticipated This Year, Said The Finance Minister

Greek finance minister told the country’s economy may shrink more than 5% this year toppling earlier projections while addressing business people in the northern Greek city of Thessalonoki.

Athens is struggling to widen its tax base to meet its deficit reduction targets as recession bites in. Without improvement in deficit reduction, the continued flow of aid under a bailout plan with IMF and other eurozone partners may get derailed.

“The recession is exceeding all projections, even the troika’s (EU-ECB- IMF) forecast. The projection in May was that recession would be at 3.8 percent, now we are exceeding 5.0 percent,” said Greek Finance Minister Evangelos Venizelos.

The country’s economy had shrunk by 8.1 per cent in the first quarter of 2011. The rate slowed down to 7.3 per cent in the second quarter for the €230 billion economy.

The government’s austerity measures such as cut in public sector pay and pensions and higher indirect taxes have already caused widespread resentment.

The finance minister is aware that other EU members are growing impatient at Athens’ continued slide and wanted to convince them that the country is committed to carry out the economic reforms.

“The most clear message Greece is sending right now … is that we are absolutely determined, without weighing any political cost, to fully meet our obligations versus are institutional partners,” said Mr. Venizelos.

Greece has to meet the conditions laid out by the troika of ECB, the IMF and the EU to receive the package it’s seeking, said German Chancellor Angela Markel.

The country is waiting for a €8 billion tranche of emergency funding under the negotiated bail-out plan and is certain to default without it.

The troika had suspended talks with Athens after it failed to stick to deficit reduction plans. Greece may not be able to avoid default indefinitely is the working assumption now.

“We must prove all those who say that Greece can’t, or doesn’t have the will, is a pariah or does not deserve to be in the euro, wrong,” added Mr. Venizelos.

“The private sector is responding very well to the PSI (private sector involvement),” said the minister referring to the debt swap plan Athens plans to conclude next month with the holders of Greek debt.

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