Feared deficit scenario confirmed

Economy and Finance Minister Yiannis Papathanassiou admitted yesterday that shrinking revenues will push the budget deficit to 6 percent of gross domestic product and that the country’s economy is heading for recession. Papathanassiou also revised lower his previous estimates of zero growth to a small contraction in GDP, taking into account the summer tourism period, according to an interview with Bloom-berg. Experts had described the ministry’s previous estimates for stagnant growth as optimistic, with some economists expecting the economy to shrink by around 1 percent in 2009 ahead of expected sluggish growth next year. The minister also revised lower a previous forecast for a budget deficit of 3.7 percent of GDP, saying it will come in at twice the European Union’s limit. Greece risks sanctions by the European Commission if cannot meet a 2010 deadline to trim the deficit to within the EU’s 3 percent of GDP cap. «Of course we will request an extension,» Papathanassiou said. «We have to be convincing that we deserve one.» Sources have said that Brussels has so far agreed to give Greece a one-year extension to lower its deficit to below 3 percent of GDP, as opposed to the two-year break it initially asked for. Responding to Papathanassiou’s comments yesterday, PASOK said that they were proof that government expenditures have been poorly spent, pushing the country further into recession. PASOK leader George Papandreou presented at the Thessaloniki trade fair last week a 100-day plan, should the Socialist party gain office, aimed at boosting incomes, strengthening economic activity, safeguarding jobs and tidying up public finances with great emphasis on catching tax evaders.