Greek economy in dire shape

 

Wednesday, November 16, 2011 » 01:23pm

Greece's economy shrank 5.2 per cent in the third quarter, highlighting the depths of the crisis as parliament debated approval of a new government under Lucas Papademos.

Athens is racing against time to adopt deeply unpopular reforms demanded by its European Union and International Monetary Fund creditors before the release of bailout loans needed to avert bankruptcy in mid-December.

Papademos' transition government, formed last week with the backing of the socialist, conservative and right-wing nationalist parties, is expected to carry a vote of confidence on Wednesday but must hold early elections in a few months.

Hoping to delay a possible default, the Greek debt management agency on Tuesday raised 1.3 billion euros ($A1.75 billion) in a sale of three-month treasury bills, having to pay slightly higher rates of 4.63 per cent, up from 4.61 per cent in October.

On Tuesday also, there appeared to be some movement on crucial plans agreed at a eurozone summit last month to write off 50 per cent of privately owned Greek debt, with a finance ministry source saying talks with the banks would begin 'this week'.

The Kathimerini newspaper said they would begin in Frankfurt on Wednesday.

But the scale of the task facing the new administration was revealed by the latest growth data from the state statistics agency.

This showed that in addition to the third-quarter contraction that was just short of an annual estimate of 5.5 per cent, the recession was deeper in the first and second quarters than originally estimated.

'It's a very bad signal. Usually during summer, because of tourism, you have a more positive situation,' said Angelos Tsakanikas, head of studies with the IOBE employers organisation, adding: 'It's a lost year.'

One possible reason for the severity of the contraction, as suggested by trade unions, could be because stretched small businesses are no longer declaring the temporary staff they hired over the summer.

The Athens stock exchange endured another miserable day, with the general index closing down 3.57 per cent and the FTSEB banking index falling 9.37 per cent.

In its darkest hour, Greece has turned to Papademos, a former European Central Bank deputy chief, to save itself from ruin and a humiliating eurozone exit.

In his maiden speech to parliament on Monday at the start of a three-day confirmation procedure, the 64-year-old said that reforms necessary to keep Greece in the eurozone would only be achieved through national unity.

'We can address the crisis faster and at a lower cost through national understanding and social cohesion,' he said ahead of the confidence vote, which the government is expected to carry by over 250 votes in the 300-seat chamber.

Greece needs to unblock eight billion euros in loans due from its May 2010 EU-IMF rescue deal which has been frozen since August.

But it must first ratify a follow-up rescue package agreed in October that would slash its huge debt by nearly a third, but which requires Greece to implement further austerity measures.

The new administration has public support, according to polls, but unions and left-wing parties are mobilising to stop the ongoing austerity drive.

On Tuesday, about 200 civil servants and university lecturers demonstrated outside parliament against pay cuts.

'Our incomes have already been reduce by 50 per cent,' the head of the civil servants union Adedy, Costas Tsikrikas, told Flash Radio.

Greek economy in dire shape | Finance | BigPond News

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