Greek Economy Shrinks Another 6%

Greek Finance Minister Yiannis Stournaras
Greek Finance Minister Yiannis Stournaras

Coming on the heels of news that the country’s unemployment rate hit a record 27 percent, the Greek government got more bad news: the economy shrank 6 percent in the fourth quarter of 2012, according to the Hellenic Hellenic Statistical Authority (ELSTAT).

The data showed that the country’s recession, now in a sixth year, isn’t recovering, despite rosy projects from the government of Prime Minister Antonis Samaras that Greece will turn the corner by the end of the year and start getting out from under a crushing economic crisis and $460 billion in debt.

The preliminary data from ELSTAT confirms that 2012 was another year of deep recession for Greece, with the year’s three other quarters all showing the economy had contracted substantially. However, the rate of contraction in the fourth quarter was slightly slower then earlier in the year. In Q1, the economy shrank by 6.7 percent, in Q2 it was 6.4 percent and in Q3 it rose to 6.7 percent.

Combined, the data suggests that the Greek economy contracted by 6.4 percent in 2012, its fourth consecutive full year of recession. The Finance Ministry had forecast a contraction of 6.5 percent for 2012. The Troika of Greece’s lenders, the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) had expected the economy to shrink by 6 percent.

Since the country’s crisis began three years ago, Greece has lost nearly 25 percent of its GDP. Looking for good news anywhere, Finance Minister Yiannis Stournaras said he would ask the Troika whether its errors in estimating the effects of austerity, so-called “fiscal multipliers” that determine how much pay cuts, tax hikes and slashed pensions would be counter-productive, would let him change some of the tax rates.

In January, chief IMF economists Olivier Blanchard and Daniel Leigh, in their report Growth Forecast Errors and Fiscal Multipliers, said the agency badly miscalculated how much austerity would hurt the Greek economy instead of helping it. They said the agency’s figures were as much as 300 percent off target.

Stournaras said that acknowledgement of error might justify some adjustments to the debt-hit country’s austerity program. “The IMF must not get caught up in academic analyses,” Stournaras said in a press briefing following a meeting of Eurozone finance ministers in Brussels. Reports said that the Greek finance ministry was considering the possibility of proposing a reduction of indirect taxes because tax revenues were far less than expected despite big increases in the rate.

Stournaras was quickly shot down by European Commission finance chief Olli Rehn, who wrote to EU officials that Greece will be forced to stick to austerity even though the numbers show it is largely backfiring. “Recent studies on fiscal multipliers are of particularly limited use when it comes to the case of Greece,” said Rehn of the IMF report.

He told the newspaper Kathimerini that it was a “fundamental misreading of historical record” to suggest the Greek program had veered off track because it was badly designed, suggesting the IMF economists didn’t know what they were talking about. Rehn said that other factors affected the Greek program, such as “persistent uncertainty and problems with implementation” blaming successive Greek governments for failing to implement reforms faster, such as privatization.


  • Underestimated the damage done by austerity? Say it ain’t so!

  • Alex

    Our government can achieve a surplus with a few more cuts and another debt principle reduction.

    However, our government can’t fix our economy. Thats chiefly the job of the Greek people themselves. Our economy will go nowhere for as long as many Greeks riots for handouts and point fingers of blame in the wrong direction rather than focus on what they can produce themselves.

  • Alex Prime Minister of Greece

     You should become an economist.  You are pretty smart….Please give us examples how the Greek people are going to fix the economy.  You say all this bullsh*t without ever having lived in Greece.  The economy has to be fixed by the government you idiot.  That is why people vote in a government, to have 1 voice that will work for them.  10.8 million people with different ideas can’t come to an agreement.

    You make the movie Dumb and Dumber look smart

  • Inbred Kosta

    “Alex” lives with his mom in Greece. She receives a s pension & today he is the richest man in the village. He has affairs with the corpse of a village goat

  • Inbred Kosta

    *She receives a US pension

  • Jasonwilliams

    If a man does not work he should not eat. If God blesses Greece with a profit try and make 10 profits from what God has provided. And don’t forget to pray. If you would seek Jesus in prayer as much as you riot your prayers may be answered!
    This the answer for all nations repent and humble yourselves before God and he will heal your land.

  • Guest

    Nice conversation! 

  • C Mooney

    When 1% of people are unemployed ask what is wrong with them, what is lacking in their skills, attitude and work ethic? When 27% are unemployed the question is why has the mechanisms of opportunity broken down?