Greece Lowers Deficit Reduction Target
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October 3, 2011 TheFreshOutlook  |
European shares slumped once again on Monday as Greece admitted that it will miss its deficit reduction target for 2011.
Market activity has fallen again today after Greece announced that it will not meet this year’s deficit reduction target of 7.6% GDP. Citing a poorer than expected economic contraction, Athens now projects that Greece’s 2011 deficit will be 8.5% GDP; down from 10.5% in 2010.
Investors reacted wearily this morning as the Dax, Cac and Ftse all fell sharply. Banking stocks were hit hardest as concerns grew about the exposure of financial institutions to Greek’s massive debt, which is expected to reach 172.7% of GDP in 2012.
The implementation of austerity measures has been made more difficult by an up-swell of public anger. Many Greeks feel that their beleaguered economy is being denied any chance to recover by the terms of its EU-IMF bailout. Troika inspectors are currently in Athens to decide on whether Greece should receive the latest instalment of the bailout. Without the payment, Greece will default by the middle of this month.
In a statement yesterday, the Greek finance ministry appealed for an end to continuing social and industrial unrest.
“Three critical months remain to finish 2011, and the final estimate of 8.5% of GDP deficit can be achieved if the state mechanism and citizens respond accordingly.”
Yet the drafting of the 2012 budget yesterday, which calls for substantial wage cuts and tax increases, is likely to further antagonise an already furious public.
Meanwhile, EU finance ministers are meeting in Luxembourg today to discuss the continuing crisis. Last week there was some optimism with regards to a solution to the eurozone’s woes after Germany voted to extend its contribution to the EFSF.
However, the announcement that Greece is struggling to adjust its finances will put the onus back on Europe’s leaders to take decisive action. Many economists continue to assert that a 50% write off in Greece’s debt and an adoption of the highly contentious “eurobond” are now the only way of placating the sovereign debt crisis.
By Dermot Tobin
[Image Courtesy of Teacher Dude’s BBQ]
