Greek Economy Will Shrink More Than Expected, Finance Minister Says

THESSALONIKI, Greece (Reuters) — Greece’s economy will shrink by more than 5 percent this year, topping earlier projections, the country’s finance minister told business people in this northern Greek city where the prime minister will speak about the economy later on Saturday.

A deep recession is making it harder for Athens to increase tax revenue and meet deficit-reduction goals under a bailout plan agreed to with its euro zone partners and the International Monetary Fund. Without corrective action the continued flow of aid may be at risk.

“The recession is exceeding all projections, even the troika’s forecast,” the finance minister, Evangelos Venizelos, said, referring to the European Union, the International Monetary Fund and the European Central Bank. “The projection in May was that recession would be at 3.8 percent, now we are exceeding 5 percent.”

The Greek economy shrank at an annual 7.3 percent clip in the second quarter, after an 8.1 percent contraction in the first three months of 2011.

Austerity measures, including higher indirect taxes and cuts in public sector pay and pensions, have hurt economic activity.

Mr. Venizelos was keen to send a message to Greece’s euro zone partners, who are growing frustrated with its backsliding, that Athens is fully committed to carrying out agreed economic reforms.

Chancellor Angela Merkel of Germany reiterated on Saturday that Greece had to meet conditions laid out by the European Union, European Central Bank and International Monetary Fund to receive the aid it is seeking.

Athens is expecting to get 8 billion euros, or $11 billion, in its next installment of emergency financing under the bailout plan, without which it would default down the line.

Greece’s financial troika, which suspended talks with Athens last week in frustration at Greece’s struggle to stick to its deficit-reduction plan, is expected to come up with a form of words in its next report to allow the next tranche of bailout funds to be paid.

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

“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” he said.

He also said that holders of Greek government bonds were warming up to a debt-swap plan Greece aims to conclude next month, a crucial part of its new rescue package agreed in July.

Article source: http://www.nytimes.com/2011/09/11/business/greek-economy-will-shrink-more-than-expected-finance-minister-says.html?partner=rss&emc=rss