Prime Minister warns crisis hitting Greece, softens taxes

Greek Prime Minister Costas Karamanlis vowed higher public investment and a crackdown on tax evasion on Thursday to soften the impact of a severe global crisis, saying growth should recover from next year. Karamanlis said his government, which has a one-seat majority in parliament, would do all it could to alleviate the harm to Greece's poor, hours after his finance minister scrapped an unpopular tax rise on the lowest-income self-employed.
"The international crisis, more intense than when it started, is now knocking on our country's door," Karamanlis said in a televised address. "No country, no economy, no society can emerge unscathed from such an intense crisis." After a decade of robust growth, the global downturn will drag Greece's economy to a virtual standstill in 2009. Polls show many angry Greeks, whose expectations of prosperity had risen, blame Karamanlis' government for the slump.
The country's worst riots in decades last month, triggered by the police shooting of a teenager, were fuelled by frustration at economic hardships and government scandals. In what some economists said was a populist gesture, Finance Minister Yannis Papathanassiou reinstated a tax exemption for the self-employed earning less than 10,500 euros a year. The decision to scrap the exemption - to pare back a widening budget deficit - sparked an outcry last year.
Papathanassiou, appointed in a reshuffle last month in the wake of the riots, announced higher cigarette and alcohol taxes on Thursday to shore up flagging budget revenues. "These are people-friendly measures at a difficult time for the economy, helping the government ahead of possible early elections," said analyst Vassilis Vlastarakis at Beta Securities. "Slapping indirect taxes was the option with the least political cost and will yield immediate revenues."
After growing by just over 3 percent last year, Greece's economy is expected to slow sharply to 0.2 percent growth in 2009 based on EU Commission forecasts. The government is more upbeat: projecting GDP growth of 1.1 percent and noting Greece will be one of only five euro zone economies to grow. Greece projects an unchanged fiscal shortfall of 3.7 percent of GDP this year: its third successive year over Brussels' 3 percent ceiling, raising the possibility of punitive action."