Effects of crisis set to linger in Greece

The short-term impact of the global crisis on the Greek economy has been softer than that seen in other European Union countries but the consequences will be harsher and more difficult to shake off in the long term, the Foundation for Economic and Industrial Research (IOBE) said in a report yesterday. IOBE said the crisis has brought to the fore problems in the current growth model that have resulted in higher borrowing costs for the state. «The borrowing needs have been met at a higher costs, transferring to the future the burden of maintaining the economy’s demand,» said the report. An increase in spending in the public investment program along with supporting a bloated civil service has helped to cushion the impact from the crisis for the economy but at a cost. Greece’s budget deficit, forecast at 3.7 percent of gross domestic product in the middle of 2009, is now seen as widening to between 10 to 12 percent of GDP by the end of the year, according to senior Finance Ministry officials. If confirmed, this means that Greece will have one of the largest budget deficits in 2009 despite its economy not having suffered as much as some of its EU peers. Greece’s economy is seen as shrinking by about 1.5 percent this years versus a negative growth rate of around 8 percent in Ireland and 4 percent in Spain.