The Recession Barks, Austerity Measures Bite

Greece just cannot get itself out of international headlines. I’m not entirely sure I would care what goes on in Greece if the country were not one of 16 key ingredients in gluing together all the pieces of the eurozone’s puzzle, keeping the euro afloat and the global economy in the peace that it needs to convalesce.

Alas, according to the recent official estimates, of which the world learned only last week, Greece’s recession deepened in the second quarter. At the same time, the country is struggling under the austerity measures that the government is ramming down its throat hard and without mercy. The methods may be questionable, but appear commensurate with the calamity that the country is facing.

Compared to the first quarter of this year, Greece’s GDP dropped 1.5%, largely due to the fact that the government has turned off all taps and reduced spending to what seems below even the bare minimum. Additionally, comparing the recent quarter to the same period the prior year, Greece’s GDP nosedived even further by 3.5%.
Even taking into account 2010 changes in methods of calculating Greece’s GDP, we are still talking about a dent in the country’s economic output the size of the Grand Canyon.

Meanwhile, the unemployment rate hit 12% in June, increasing from the über-marginally better May number of 11.9%. However, compared to the second quarter of 2009, the decline of the unemployment rate is more tangible. At the end of June 2009, Greece’s unemployment was bad, but bearable at 8.5%. At the end of June 2010, it was 10 basis points shy of the high 10-year unemployment rate of 12.1% reported in February of this year. The most affected were young people. Almost one in three Greeks between the ages of 15 and 24 is unemployed. That translates into an unemployment rate in that age group of 32.5%, compared to the 25% reported in May 2010.

What started the avalanche was the sovereign debt iceberg that revealed all its ugliness when the new Socialist government revised the inherited budget deficit. It did not help that the new government had little to do with expensing through taxpayers’ accounts. The gap of 13.6% of GDP was difficult to swallow, prompting the government to introduce austerity measures that are supposed to narrow it to 8.1% by the end of 2010.

The whole world knows how profoundly Greeks hate living with their belts tightened and cushy, publicly funded benefits taken away.
But they can protest, strike and vandalize public property all they want. The fact remains that, to avoid going bankrupt in May, the Greek government had to make tough promises to its EU partners and the International Monetary Fund. The biggest promise involved austerity measures and cutting the budget deficit to 8.1% at any cost, which shocked so many Greeks out of generous salaries and pensions, while hiking personal taxes.