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Text by News Wires

Latest update : 2011-09-01

A newly-formed and independent budget watchdog group in Greece reported Thursday that the country's worsening economic situation could neutralise the benefits from previous EU loan packages

AFP - The dynamic of Greece's enormous debt is "out of control" and slippage on deficit targets exacerbated by a deep recession threaten to neutralise benefits from a new EU bailout, the country's budget watchdog said Wednesday.

"A significant debt increase, a high primary deficit and the deep recession have boosted to the extreme the debt dynamic, which is now out of control," the newly-formed State Budget Execution Monitoring Office, staffed by independent analysts, said in a report.

"These developments seem to offset to a great extent the positive impact" of the latest EU loan package of 159 billion euros ($230 billion) agreed last month, it added, according to excerpts published by the semi-state Athens News Agency.

Held down by cutbacks, the Greek economy is shrinking at an alarming rate, and Finance Minister Evangelos Venizelos last week said output will likely contract by more than 4.5 percent in 2011, up from a 3.5 percent forecast.

The Greek debt, in the meantime, has ballooned to over 350 billion euros.

Greece is undergoing an EU-IMF-ECB audit that will determine whether it will be given the latest portion out of an earlier 110-billion-euro loan that pulled the country back from the brink of bankruptcy last year.

Greek reports said senior representatives from the three organisations who arrived on Monday to head the audit, have noted delays in the application of the recovery programme, particularly in sectors that threaten to raise strong union protest.

"The coming weeks until October 15-20 are very critical and serious," Venizelos told Real FM radio in an interview on Wednesday.

The public deficit -- the source of Greece's economic ills -- is also running dangerously high, coming in at 14.69 billion euros ($21.3 billion) in the first half of 2011 compared to a target of 16.68 billion for the entire year.

To make up the shortfall, the authorities will on Thursday hike sales tax for food at restaurants and hotels by ten points to 23 percent.

The restaurant sector has described the measure as ruinous and some operators have threatened to withhold the tax to avoid closing down altogether.

Athens also has to contend with a cacophony in Europe over a controversial cash collateral with Finland in return for Helsinki's portion of a second loan package.

Eurozone leaders approved a new 109-billion-euro bailout for Greece in July to save the country from bankruptcy, with the private sector providing another 50 billion euros.

But Finland later negotiated a collateral deal with Greece in the form of cash, an arrangement that was effectively shot down by vehement opposition from Germany, Austria, the Netherlands, Slovenia and Slovakia.

Date created : 2011-09-01


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