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BY COSTIS STAMBOLIS
In his first address to parliament, Greece’s newly elected Prime Minister George Papandreou presented his government’s plans for his term in office focusing on the poor state of the economy and warning of the tough measures that will need to be taken.
“Today we face an unprecedented fiscal derailment”, he said. “The deficit has to be cut and we must start containing the public debt”. According to George Papaconstantinou, the Finance Minister, Greece is facing a huge budget deficit which is likely to exceed 12% of GDP at the end of this year, well above the 3% limit for eurozone members.
Greece is facing its worst financial crisis in more than 20 years as the previous government of Costas Karamanlis, which collapsed under an avalanche of scandals and total mismanagement of the economy, failed to curb public spending and control the revenue collection mechanism.
As a result, the government resorted to heavy borrowing and the country’s public debt skyrocketed above 300 bln euros to become the eurozone’s highest as a percentage of GDP.
Although over the last 12 months Greece has been less badly hit by the international economic turmoil, its deficit and public debt have risen exceedingly fast and at levels not experienced before. At the same time the economy has contracted at approximately 1.5% following 15 years of continuous growth with average annual growth of 4.0%. Faced with this adverse situation Greece’s Finance Minister will try to convince his colleagues for a phased reduction of the deficit aiming at 9,2% for 2010.
In statements to the Greek press, Papaconstantinou said he will need 3 to 4 years in order to scale down the deficit to manageable levels.
According to the government’s plan, for which the Finance Minister will seek approval from Brussels, a gradual reduction in the deficit will be sought while at the same time attempting a return to economic growth.
In this direction the Minister announced a 2.5 bln euro stimulus package to be launched before the year’s end, in order to jump start economic activity and provide assistance to the unemployed and the needy segments of the population. According to Greece’s National Statistical Service, the country’s unemployment rate shot up to 9.6% in July, the highest in three years. This brings the total number of unemployed up to an unprecedented 467,000 given a total work force of 4.49 mln people.
In view of the above negative outlook it is no wonder that the Prime Minister is sounding alarmist when he says that “we are in an emergency situation, everyone must understand that. There will need to be spending cuts at every ministry”.
Papandreou said too that it was his government’s intention to restore the faith of the European Union and its member states in the Greek economy which for his government was the number one priority.
