ECONOMY

Talk lingers as default rejected

The government continued to play down lingering talk yesterday that it would default on its debt or abandon the single currency as figures showed the economy struggling in recession. Talk about default or dropping the euro «is down to rumors that have no basis in fact, which are speculative… all that is improbable… and comical,» Finance Minister Giorgos Papaconstantinou told a press conference. Official figures meanwhile showed that the Greek economy shrank 1.0 percent in the first quarter compared to the last three months of 2009 and contracted 2.5 percent from a year earlier. The Hellenic Statistical Authority also said April industrial output slumped 5.7 percent compared with a year earlier after a fall of 3.7 percent in March, and was down 5.3 percent for the first four months of 2010. Global Insight analyst Diego Iscaro said the figures showed the Greek economy «remained in free fall,» with worse to come. Iscaro said that with public finances in a «dire state,» the government has no leeway to give the economy a boost, adding that he expects to soon revise lower his forecast for a contraction of 3.8 percent this year. Most economists see the recession deepening in the third quarter of the year, as the recently imposed austerity measures begin to bite. But Papaconstantinou said that recent data showing surprisingly strong retail sales and private consumption suggested the expected slowdown may be less than is feared. Apart from the overall gross domestic product figures, Papaconstantinou said other indicators «show that things are not as one-dimensional as one would be led to believe. And that gives some hope that there may be pleasing surprises as the year progresses.» Last month, Athens agreed to a rescue package worth 110 billion euros with the European Union and International Monetary Fund to cover its debt obligations after it could no longer afford to raise fresh funds on international markets. Next week, a delegation of EU, European Central Bank and IMF officials will visit Athens as part of a regular progress review. Figures released by the Bank of Greece yesterday showed a sharp narrowing in the central government’s cash deficit. According to the central bank, the cash deficit for the period January-May narrowed to 9.5 billion euros from 14.6 billion euros in the same period last year. In his remarks, Papaconstantinou said Greece was on track with its reform program and aimed to proceed with a number of legislative initiatives this month toward implementing those promises. Part of the legislation to be submitted to Parliament this month will be measures to reform Greece’s deficit-ridden pension system and privatize the loss-making state-owned railways. Also expected is legislation to create a special bank support program. «We have no major issues outstanding [with the reform program],» Papaconstantinou said. EU-IMF installment set to arrive on time Greece will receive the second installment of a 110-billion-euro bailout program from the European Union and the International Monetary Fund on schedule in September, Finance Minister Giorgos Papaconstantinou said yesterday. «Of course, [the second payment] is secure,» Papaconstantinou told reporters. Greece has promised to ram through deficit-reduction measures totaling 45 billion euros for 2010-13 to narrow its budget gap by an unprecedented 11 percentage points of gross domestic product. The minister also said deposit outflows from Greek banks had stopped recently, stressing that many Greeks who had withdrawn money from banks have not sent it abroad. On the privatization front, Papaconstantinou said that the government may award the management of Thessaloniki water company EYATH to an investor. Greece has announced it will sell a 23 percent share of EYATH as part of a three-year 3-billion-euro privatization program. Other assets that will go under the hammer include loss-making state companies the Hellenic Railways Organization (OSE) and Hellenic Post (ELTA), according to the Finance Ministry.