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Austerity Drives Down Greek Deficit

BOGAusterity measures that squeeze Greek pocketbooks are making an impact. Greece cut its deficit by a third last year, to 6.5 percent from 9.4 percent in 2011.
The government expects to cut the deficit to 4.3 percent by the end of this year, and predicts the beginning of a recovery as it moves toward the Eurozone ceiling of 3 percent, although its debt is still expected to be around 124 percent of GDP in 2020.
Prime Minister Antonis Samaras’ coalition government pushed a 13.5 billion euros ($17.8 billion) spending cut and tax hike plan through parliament in December that unblocked a series of 52.5 billion euros in loans, which stopped market jitters.
“It’s fast (deficitD reduction, good news in a way because it means the program is proceeding, but with a deeper recession at the same time,” Platon Tinios, Assistant Professor of Economics at the Piraeus University, told Southeast European Times.
However, he said the government must find ways to raise revenues, and not rely on spending cuts alone. “As you cut, you make cuts harder. Now we’re getting into the problem’s kernel and some painful choices will have to be made,” he added.
The cuts, which started in 2009, targeted workers, pensioners and the poor while tax evaders who owe 52.5 billion euros $69.2 billion) have still largely been ignored. Greek workers responded with a barrage of protests and strikes.
“Desperate people are more likely to engage in desperate actions,” Dimitris Hatzinikolaou, economics professor at the Ioannina University, told SETimes. “For a highly indebted country … a policy of such a big deficit reduction leads undoubtedly to catastrophic phenomena, such as 30 percent unemployment,” he added. The rate is now at a record 26.8 percent.
Despite the increase in Value Added Tax (VAT) to 23 percent, lacking tax revenues and a 775 million euro ($1.02 billion) downturn as Greeks have slowed spending almost to a standstill, are complicating rebound hopes.
Vassilis Monastiriotis, lecturer at the London School of Economics, told SETimes that overall, “the numbers are good and close to the best hoped for.” He added: “There’s a big worry whether the government will be able to collect the taxes and discontent is great on the streets … (but) the measures taken have been progressive.”
Antonis Klapsis, head of research at the Konstandinos Karamanlis Institute for Democracy in Athens, told SETimes that, “news about the deficit is good, but the key is whether Greece will find its way back to economic growth. If this doesn’t happen and the depression continues, then the situation could easily get out of hand.”
(Reprinted by permission of Southeast European Times,

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