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Greece faces 4th year of recession, jobless surge

By Nicholas Paphitis

Associated Press

Published: Thursday, Sept. 15 2011 10:25 a.m. MDT

Members of an organization for the deaf, protest in central Athens Thursday, Sept. 15, 2011. The rally was held to protest cuts in state grants to deaf organizations, resulting in a reduction of sign language teachers. Greeks are facing another round of deep cuts and taxes in order to meet its aggressive budget-cutting targets demanded by international rescue creditors.

Petros Giannakouris, Associated Press

ATHENS, Greece — Debt-hobbled Greece must brace for a fourth year of recession, the finance minister warned Thursday as unemployment hit a new record and the government debated new public sector cuts to secure the cash lifeline protecting the country from a chaotic bankruptcy.

"There is a cumulative recession lasting three years, that now will become four years," Finance Minister Evangelos Venizelos told parliament.

The Socialist government's prime concern is to revive the economy, whose rapid shrinkage makes Greece's vital cash-generating financial targets even harder to meet despite more than a year of tough austerity measures. Those goals have been demanded by the international creditors keeping Greece afloat.

Venizelos says the Greek economy will contract 5.3 percent this year, much more than previously expected, but emergency measures such as a new blanket property tax will plug a revenue shortfall.

His gloomy forecast came a day after the leaders of Germany, France and Greece insisted in an emergency teleconference that Greece remains an "integral" part of the eurozone, but stressed the country has to meet its budget reform pledges.

The talks between German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou calmed markets after days of turmoil sparked by fears Greece was heading rapidly for a catastrophic default or leaving the 17-nation eurozone.

But Benoit de Broissia, an analyst at KBL Richelieu in Paris, said the situation remained dire.

"We are still in a scenario where Greece is facing immense difficulties and the markets feel Greece's debt can't be resolved," he said. "So markets are still speculating on Greece's bankruptcy."

The eurozone's finance ministers are to discuss Greece's debt problems further at a meeting in Poland beginning Thursday night also attended by U.S. Treasury chief Timothy Geithner.

The main fear of an uncontrolled Greek bankruptcy is that it could destabilize other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also batter European banks, many of which are large holders of Greek government bonds.

Greece, barred by astonishingly high interest rates from borrowing on international markets, has relied for more than a year on its bailout loans.

But that cash flow will dry up unless the country consistently meets deficit reduction targets and passes quarterly reviews by the EU, the European Central Bank and the International Monetary Fund — known as the "troika."

Without the next injection of cash, worth €8 billion ($11 billion), Greece only has enough cash to see it through mid-October.

After strong pressure from its creditors, who suspended their review of Greece's reforms earlier this month, Athens imposed an emergency property tax on Sunday. The Finance Ministry said churches and other places of worship would be exempt from the levy that ranges from €4-20 ($5.5-27.50) for every square meter (10.7 square feet). Homeowners must pay the tax through their electricity bills or face disconnection from the grid — a strict move in a country beset by tax evasion.

"The ball in now in the Greek court," EU economic and monetary affairs commissioner Olli Rehn said in Brussels. "Over the last weekend the Greek government took very important decisions that go a long way towards meeting the fiscal target for this year."

The head of a new European Commission task force created to help Greece's administration push through reforms said Greek government officials seemed "very much aware" of the challenges that lie ahead.

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