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Greece's success in reducing deficit comes at a price

For-rent signs are displayed at the entrance of a building in central Athens on Friday. Shops, caught between higher taxes and consumers’ dwindling purchasing power, are closing.

Associated Press

For-rent signs are displayed at the entrance of a building in central Athens on Friday. Shops, caught between higher taxes and consumers’ dwindling purchasing power, are closing.

ATHENS, Greece — The plan to rescue Greece from bankruptcy has kicked in, and with a vengeance. As the government slashes spending and hikes taxes, the deficit is way down — but jobs are vanishing, shops are closing and gloom is prevailing on the streets.

The European Union likes the swift action on the deficit. But few Greeks are in a mood to celebrate. Many predict a fall of strikes and demonstrations as those who could afford a summer holiday return to a grim reality.

On paper, the turnaround is working. The Finance Ministry said Friday the budget deficit has narrowed by a whopping 39.7 percent on the year, slightly better than the original target. The European Union, which demanded the cuts in return for bailout loans, is positively purring.

On Thursday, the EU said Greece's efforts to slash spending were "impressive."

Less impressed are shop owners, who say consumers have tightened their purse strings, cutting down on the nonessentials. Higher taxes and cuts in government jobs and salaries are removing the stimulus effect of government spending from the economy.

"Civil servants used to come in and buy a double espresso and something to eat. Now they get a single espresso, and a cheaper sandwich," said Constantinos Garyfallou, who spends about 15 hours a day running a coffee shop just off Athens' central Syntagma Square and near several ministries and state-run services.

Even small changes in consumer spending — 50 cents less per customer each day — could translate to a fall in revenue for his coffee shop of about $5,000 a month.

"Nobody can withstand a fall like that," Garyfallou said.

Struggling under a mountain of debt, Greece was forced this year to ask for rescue loans from the International Monetary Fund and other European Union countries that use the euro as their currency in order to avoid defaulting on its loans.

In return, the center-left government is having to implement a strict austerity program that has seen it cut the pay of Greece's more than 700,000 civil servants, trim pensions, hike taxes and overhaul pension and employment rules.

Some economists think the emphasis on austerity could be misplaced, and in the end could make repaying Greece's debts harder by choking off growth.

A recent survey by the Athens Chamber of Commerce and Industry revealed that 86 percent of the 523 businesses questioned said they were suffering cash flow problems, while a staggering 93 percent had suffered a fall in turnover due to the financial crisis.

Businesses in the center of Athens have also suffered from the frequent strikes and sometimes-violent demonstrations in the spring, when angry Greeks took to the streets to protest the austerity program, blocking traffic from the city center for hours.

Greece's success in reducing deficit comes at a price 08/20/10 [Last modified: Friday, August 20, 2010 9:51pm]
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