Greece's austerity measures are hurting revenues and hindering deficit-cutting efforts while more jobs are lost, fresh economic data showed on Friday. Heavy debt payments and weak revenues weighed on the budget amid a deepening recession, with the deficit falling behind a full-year reduction target in the year to August, for the first time since the crisis hit Greece and international markets.
Jobless rate hits 11.6 percent in June "Our road is long and none of us are allowed to relax," Prime Minister George Papandreou said in the northern city of Thessaloniki, where he is expected to make a major economic policy speech on Saturday. Eight months into the year, budget revenues are growing at a snail's pace of 3.3 percent compared to a targeted 13.7 percent annual clip, despite a series of tax increases that included a rise in the VAT rate to 23 percent.
As a result, the budget deficit of the country's central government shrank at an annual 32.2 percent pace to 14.49 billion euros ($18.38 billion), less than the 39.5 percent rate of reduction targeted for 2010 as a whole. "Based on the deficit reduction so far and on expectations of revenues and expenditures to December, the end-year target of a 39.5 percent deficit reduction in 2010 compared to 2009 will be met in full," the finance ministry said.
Greece is scrambling to cut its deficit to 8.1 percent of GDP this year from 13.6 percent in 2009 in exchange for 110 billion euros of continued emergency funding by the IMF and its euro zone peers to avoid default. "Risks have shifted from the side of expenditures to revenues. This is the government's struggle - to grow revenues amidst a recession," said Eurobank economist Gikas Hardouvelis.
"There is no room for higher taxes, more hikes would choke those who are paying the state's revenues. The solution is clamping down on tax evasion and improving the tax collection mechanism," he added. With the economy contracting by 3.7 percent year-on-year in the second quarter, rising unemployment is another headache for the socialist government, which needs to stay the course of fiscal consolidation amid growing discontent. Fresh data showed the jobless rate rose by three percentage points year-on-year in June to 11.6 percent, with the backwash of the debt crisis being increasingly felt in the real economy.
Earlier this week mid-sized construction firm Attikat filed for bankruptcy protection while Lambrakis Press, the country's biggest newspaper group, said it shut down its book publishing division to stop bleeding cash. Rising joblessness is more acute in the younger age groups. Last week Defence Minister Evangelos Venizelos said he is considering extending the military service of conscripts who have no work upon discharge. With fiscal targets pressing, the situation leaves little room for handouts and relief as Papandreou is about to make a state of the economy address in Thessaloniki and offer hope for exiting the crisis while unions grow more restive.