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Edition: U.S. Article Comments (2) Save Email Print Reprints Most Popular Most Shared Florida AG proposes tougher illegal immigrant curbs 11 Aug 2010 Scientists find new superbug spreading from India 11 Aug 2010 Few Chernobyl radiation risks from Russia fires 10:23am EDT Attractive women overlooked for certain jobs? 09 Aug 2010 Wall Street drops on jobless data and Cisco outlook 10:51am EDT Analysis: Deflation poses threat to big-ticket retailers 11 Aug 2010 GM posts largest quarterly profit since 2004 10:41am EDT Jobless claims jump shows labor market ailing 11:08am EDT Iran website shows "graves" dug for invading troops 10 Aug 2010 Cancer cells slurp up fructose, US study finds 02 Aug 2010 Scientists find new superbug spreading from India 11 Aug 2010 Cancer cells slurp up fructose, US study finds 02 Aug 2010 Florida AG proposes tougher illegal immigrant curbs 11 Aug 2010 Landslides complicate Pakistan flood relief efforts | Video 09 Aug 2010 Strange and unusual 25 Feb 2010 What do food allergy labels really mean? 11 Aug 2010 India to shut BlackBerry if security not addressed 11:27am EDT Ecuador rocked by 6.9 quake, no major damage 10:43am EDT Attractive women overlooked for certain jobs? 09 Aug 2010 Bank repossessions drive up July foreclosures 10:31am EDT Commentary Iraq, America and hired guns In the often perverse logic that has driven America’s war in Iraq, as U.S. soldiers are withdrawn the number of private security contractors is set to rise, writes Bernd Debusmann. Commentary Austerity hits Greek economy harder than forecast Digg This Tweet This Share on LinkedIn Share on Facebook Related News Analysis: Slovakia flirts with EU censure by opposing Greek aid 10:20am EDT Related Topics World » A Greek national flag flutters in the air next to a statue of Athena in Athens 29, 2010. Credit: Reuters/Yiorgos Karahalis By George Georgiopoulos ATHENS | Thu Aug 12, 2010 10:20am EDT ATHENS (Reuters) - Greece's economy shrank more than expected in the second quarter and unemployment climbed to 12 percent, reflecting the pain of austerity measures agreed with lenders to overcome the country's financing crisis. Flash estimates released by the Greek statistics service on Thursday showed gross domestic product (GDP) contracted by 1.5 percent in the three months to June, and economists whose forecasts had centered on a 1.0 percent slide said things were likely to get worse before they turn better. "We think the largest hit to private consumption from tighter fiscal policy is probably still ahead of us," said Citigroup economist Giada Giani. "We expect growth to remain negative for the rest of the year, with an average decline of around 3.5 percent for 2010." Greece so far has mustered the political will to implement reforms and is on track to meet its goal to slash the budget deficit to 8.1 percent of GDP from 13.6 percent last year, scrambling to convince markets its past profligacy is over. Belt-tightening helped shrink the budget gap by 45 percent in the first half, prompting praise from euro zone peers and the IMF which came to its rescue with a 110 billion euro ($141 billion) bailout in May to avert a broader debt crisis in the 16-nation currency bloc. But the deepening recession remains a risk for the government's revenue-generating ambitions, especially if the 240 billion euro economy slumps more than a projected 4.0 percent this year, as public sector pay cuts and tax hikes take a toll. Highlighting the pain, unemployment posted a record jump in May, climbing to 12 from 8.5 percent a year earlier, with the EU and the IMF projecting further deterioration to as high as 15 percent in the next two years. MARATHON RACE Apprehension over fiscal reform fatigue has kept funding costs prohibitively high -- the extra yield investors demand to hold Greek 10-year bonds rather than benchmark German bunds is still stuck at around 8 percentage points, while five-year credit default swaps on Greek debt rose to 795 basis points, up 32 basis points on the day, shortly after the GDP release. This means it now costs 795,000 euros per year to insure an exposure of 10 million euros of Greek government bonds. Many market participants worry that sustained economic malaise may set the stage for political tension and unrest down the road. Now in its second year, the Greek recession is deepening consumers' insecurities about jobs and debt, driving them to cut spending and to try to unwind borrowing. Economists project the impact will become more pronounced in the second half. "The labor force figures for May, which showed a sharp increase in unemployment, illustrate that the second half of the year will continue to be very difficult for the Greek economy and for households in particular," said Diego Iscaro, an economist at IHS Global Insight. According to the latest research by retail confederation ESEE, about a fifth of small shops in central Athens have shut down as a result of the downturn. "Unemployment will rise more in the months ahead. We have not gone through such a situation in the past: out of some 100 shops in my area 15 have closed in the last four months and I see things worsening from September," said Konstantinos Kserikos, 37, a book store owner in the center of Athens. Even major companies like Aldi, the world's biggest discount food retailer, and French high-street retailer FNAC are leaving the Greek market. Atlantic, a Greek supermarket chain, filed for bankruptcy protection, citing the recession. One mitigating factor providing some support is the improvement in net exports, helped by a weaker euro and a global recovery. "We need to look beyond today's numbers toward 2011, as this will be the real crunch year that will decide Greece's fate," said Anke Richter, credit research director at Conduit Capital Markets. "Greece is so far on a good track to reduce its budget deficit, but this is a marathon race. After five kilometers everyone looks in good shape. The question is, will the voters and politicians have the stamina in a year's time?" World Comments See All Comments (2) | Post Comment Aug 12, 2010 9:30am EDT Is Greece still borrowing more than it is producing? Greece has paid government employees with borrowed money for years. Their economy in effect looked much stronger than it really was. Sooner or later lenders expect to be paid back. Christmas is over now it is time to pay the bills. andyrussell Report As Abusive Aug 12, 2010 10:34am EDT “Greece is so far on a good track to reduce its budget deficit, …” Sure it is, it’s just to cut public expenditures to the bare bone. Equatorial Guinea is a role model for Greece, piigs and everybody. Acumulated public dept 1.1% Budget surplus every year the last decade Official unemployment scanty 30% Commercial interest rate at paltry 15% Inflation a modest 7.5% Per capita income (PPP) at lavish $5 358 Compare that to a debt ridden country like Singapore how issue its own currency. Public dept 2009 117.6 of GDP Runs permanent budget deficits Punished severely by the invisible bond vigilantes: 3-Month T-Bill Yield 0.28 1-YearT-Bill Yield 0.33 10-Year Bond Yield 1,87 20-Year Bond Yield 2,78 Unemployment at staggering teckentydaren Report As Abusive See All Comments (2) Add a Comment *We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language or appear to be spam and review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. © Copyright 2010 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Reader Feedback Mobile Newsletters RSS Podcasts Widgets Your View Analyst Research Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts Venture Capital Journal International Financing Review Project Finance International PEhub.com PE Week FindLaw Reuters on Facebook Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests. NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.

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