Greek Recession Deepens, Complicating Its Deficit Reduction

Posted September 2nd, 2011 at 9:50 am (UTC-5)
Leave a comment

Greece says its recessionary economy may shrink 5 percent this year, making it more difficult for the debt-ridden government to meet its pledge to reduce its deficit.

The country’s economic plight led to a break-off in talks Friday between Greek financial officials and inspectors from the International Monetary Fund, the European Union and the European Central Bank about whether Athens was entitled to collect an $11 billion installment from last year’s $157 billion international bailout.

Greek news accounts said the talks broke down over disagreement about the extent to which Athens was enacting economic reforms it had promised to adopt. But Greek Finance Minister Evangelos Venizelos denied a rift and said the talks would resume in a couple weeks.

Greece has been struggling to meet deficit reduction targets as the recession has deepened from a predicted 3.5 percent contraction.

The government says tax collections have fallen short as cash-strapped consumers spend less. But the inspectors have said that the government has been slow to sell state-owned properties to raise cash and to adopt labor and pension reforms.

The Greek government says its budget deficit this year could reach 8.3 percent of the country’s economic production, or even more, compared to the 7.6 percent target.

Greece has now been forced to secure two international bailouts — one in 2010 and a second one this year — along with those granted to the Irish and Portuguese governments.

Other European governments have adopted a variety of spending cuts and tax increases in an attempt to contain the debt contagion. On Friday, Spain’s lower house of Parliament adopted a constitutional amendment requiring the government to keep its future deficits very low. That sent the measure to the Senate for its likely approval next week.