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Roubini: The collapse of Greece is inevitable

01 November 2010 / 15:11:29  GRReporter
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"The collapse of Greece is a matter of time," said the world-renowned economist Nouriel Roubini in an interview with Capital magazine, quoted by the Athens News Agency. According to him, even if the Greek government manages to implement the severe measures imposed by the consolidation of domestic finance, there will remain a very large external debt. "So, for me the question is not whether Greece will go bankrupt, but when." Roubini expressed serious doubts concerning the capability of the socialist government to deal with this situation and stressed that the rescue mechanism of the Greek economy only slows down the process and it can not save the Mediterranean country from the inevitable.

Meanwhile, the third installment of the financial support to Greece based on the Memorandum with the Eurozone countries and the International Monetary Fund is under question. Last week’s confession of the Prime Minister George Papandreou for early parliamentary elections if PASOK losses local elections put a spoke in the wheels of the Greek economy. This statement caused a series of responses, both inside and outside the country. At the same time it became clear that the revenue in the first nine months of 2010 is € 1.8 billion less than planned at the beginning of the year.

Filling the revenue and expenditure gap in the budget is not going on as planned despite raising taxes, fees and excise duties and reducing the salaries of civil servants. Greece was provided financial support for three years in the early spring on terms of consolidating its home finances and restructuring its public administration. European Central Bank, the European Commission and the International Monetary Fund took the obligation through the Memorandum to grant low interest loans (compared to those offered on international markets) to the country for four years until the government puts the national economy in order. The ultimate purpose of the Memorandum is Greece's budget deficit to reach 3% of GDP by the end of 2013.  

Here comes the next challenge. The deficit for 2009 is still unknown after experts from the European statistical office Eurostat found old debts that were not mentioned initially. So, the whole basis on which the Memorandum for financial support  was built is changing and the government of George Papandreou is forced to further trim state spending to meet its obligations to international partners.

The third support installment should be transferred to the Greek account at the end of November and will be preceded by another visit of the supervisory Troika (IMF, ECB and the EC). The next nine billion euros will be used for payment of wages in the public sector, covering the needs of social security funds and the repayment of certain other operating expenses in the budget. They will prepare a report with recommendations that will most likely not be recommendatory but mandatory and it will include additional measures to ensure the next funding installment. According to the Greek economic analysts, if the government fails to take the new budget constraints by the end of the year they will become inevitable in the coming 2011.

It is known for sure that the government should end the next year the collection of overdue payments to state institutions and the new VAT rearrangement. The next step is equalization the excise duty of transport and heating fuel, which was originally planned for this winter. The new unified payment system for civil servants will come into force on January 1, 2011 which will make the levels of wages even and will indirectly cut spending. The government hopes to raise as much money from the real estate market by increasing the tax base of immovable property and the imposition of higher tax on inheritance and donations.

Tags: EconomyMarketsNouriel RoubiniBankruptcyGreece
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