f_0022433_18487 - THEWORLDTODAY.ORG JUNE 2011 PAGE 17...

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Europe Vanessa Rossi and Will Jackson PAGE 17 AP PHOTO/ PETROS GIANNAKOURIS THEWORLDTODAY.ORG JUNE 2011 No Happy Anniversary r ECENTLY REPORTED DATA FOR THE FIRST quarter of 2011 showed GDP down about ±ve percent versus 2010, but losses may have been as much as double this figure without the assistance that has kept the government, and by implication the banking system, functioning. However, there is not yet sufficient light at the end of the debt tunnel to boost confidence in the medicine working. Further upward revisions to Greece’s debt data, as well as the difficulties that have been seen and will continue to emerge in meeting fiscal targets, have put the spotlight on the root of the problem: excessive debt. Considerable headwinds are hampering efforts to bring debt under control. Firstly, annual interest costs alone will be as much as seven to eight percent of GDP and rising as debt is now estimated to reach around 150 percent of GDP in 2011. Thus the government will not be able to reduce the budget deficit unless it achieves a substantial surplus on the primary budget – the balance between revenues and non- interest expenditure. Secondly, it is extremely difficult to achieve and maintain a primary budget surplus. The programme of structural adjustments, spending cuts and tax reforms agreed as part of the bail-out deal has been only partially implemented. The tax take remains low, and moves towards deregulation and Just one year ago, as financial markets lost confidence in the Greek government’s ability to meet its mounting debt obligations, fellow Eurozone members along with the International Monetary Fund (IMF) stepped in to provide a 110 billion euro bail-out. This prevented an immediate collapse in Greece’s public sector and financial system. However tough and unpopular the last year of fiscal austerity and recession has been, it would have been far worse without the emergency loans.
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privatisations are progressing only slowly, hindered also by recessionary conditions. And thirdly, while government debt was expected to peak at about 150 percent of GDP, it is now likely to rise to over 160 percent of GDP even if the tough budget targets set in the bail- out deal are met, which is unlikely. With weak local growth and low national savings, the level of debt and interest payments in Greece are simply too high to be supported. Last year’s rosy image of Greece beginnning to bring debt under control and return to capital markets for funding by 2012, or even starting to repay the emergency loans by 2014, was not realistic. Talks are now in progress over extending the funding programme and modifying the terms. However, to many observers, this is becoming increasingly like
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This note was uploaded on 02/01/2012 for the course POLS 494 taught by Professor Garymoncrief during the Fall '11 term at Boise State.

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f_0022433_18487 - THEWORLDTODAY.ORG JUNE 2011 PAGE 17...

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