Study Says Instant Austerity Will Worsen Greek Recession

An eldery woman begs by the Bank of Greece headquarters in Athens. (AFP PHOTO/LOUISA GOULIAMAKI)

Greek Prime Minister Antonis Samaras’ failure to get a two-year delay for more austerity measures that international lenders want applied immediately will be costly, a state-sponsored study has found, because it will keep the country in recession even longer.

Samaras’ uneasy coalition government, made up of his New Democracy Conservatives, the PASOK Socialists and Democratic Left, is about to present a plan to cut spending by 11.6 billion euros ($14.4 billion) over the next two years, instead of four as Samaras wanted, but did not request from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB.)

He also did not raise the question when he went to meet German Chancellor Angela Merkel in Berlin and French President Francois Hollande in France last month, and has broken his vow ahead of the June 17 elections to try to renegotiate the onerous terms of bailouts and austerity measures.

The Center of Planning and Economic Research (KEPE) said in a bulletin that, “In the case where the 11.6 billion euros in agreed government spending cuts are implemented (over) a two-year period … the 2012 recession will continue in 2013 and 2014.” Pay cuts, big tax hikes and slashed pensions have worsened Greece’s five-year recession, putting nearly two million people out of work, closed 68,000 businesses and shrinking the economy by 7 percent.

Samaras is planning to deliver more, with many of the new cuts aimed directly at workers, pensioners and the poor. Tax evaders costing the country $70 billion – a bill that grows $15 billion annually – have largely continued to escape. KEPE said that if Greece could spread out the cuts over two more years and have more time to meet fiscal targets to reduce its deficit from 9.3 to 3 percent, that the recession would be lessened.

That includes lowering the interest it pays on debt, the center said. Much of the revenues from a first series of $152 billion in rescue loans goes to pay debt service and banks and investors and not fund government programs, as will a second for $173 billion if it is released. The Troika is holding back a last installment, of $38.8 billion, from the first bailout, and warned it could cancel the second package entirely if Samaras does not make more cuts and reforms.

Another financial problem for Greece that could make matters worse is a delayed recapitalization of banks, who need an injection of funds because a previous government this year imposed 74 percent losses on investors and banks holding Greek bonds. That money would come from the second bailout under the current agreement, which would leave even less money for social programs.
(Source: AFP)