A Lesson on Cost-Cutting… From Greece
by Martin Denholm, Senior Editor
Wednesday, July 7, 2010
Greece – the poster-child for reckless spending and irresponsible budget management – has suddenly morphed into the shining example of how to cut a deficit.
Figures just released by the Greek central bank show that the country’s budget crackdown (a.k.a. austerity measures) paid off over the first half of 2010, as it slashed its shortfall by a whopping 42%…
From January-June, Greece managed to chop its deficit to 11.5 billion euros, compared with the 19 billion-euro reading over the first half of 2009. That equates to 4.9% of Greek GDP – comfortably within the International Monetary Fund’s target of 5.8%.
For the full-year, Greece is aiming for a reduction from the ugly 13.6% of GDP in 2009 to 8.1%.
By the numbers, government spending declined by 15% to 30.1 euros, while it also scooped in 7% more revenue – a total of 23.2 billion euros.
Cause for a small measure of celebration, yes? Not if you’re a Greek investor. The country’s stock market barely budged on the news. Hardly surprising, though…
Recession and Revolt
Keep in mind that the Greek economy remains in recession, with the government projecting a 4% GDP contraction this year. As a result, tax revenue dropped below the government’s target.
In addition, public opinion of the sharp budget cuts remains split, with 49% in favor of the cuts and 48% against. However, Kappa Research reports that of the 49%, 35% believe that while the cuts are necessary, they’re also excessive.
In addition, the BBC quotes Professor Kevin Featherstone of the London School of Economics, who states that Greece still faces “tremendous [trade] union militancy.” Tomorrow (July 8), workers across the country will go on strike for the sixth time since the austerity plans were announced – this time in protest of a Greek parliamentary vote that would raise the official retirement age to 65. (Poor souls!)
Looking further down the road, Greece is hoping that its cost-cutting measures will be enough to warrant two additional 9 billion euro loans – one in September and the other at the end of 2010.
Best regards,
Martin Denholm
Related Investment U Articles:
- Haircuts Will Be a Long-Term Problem for the EU
- Why You Should Care About the Greek Debt Default
- When One Vote is Worth 15 Billion Euros
- Four Reasons Why The United States is Not Greece
- Ladies and Gentlemen: The 17th Member of the Circle of Hell
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