How can Greece meet its fiscal targets if its economy keeps shrinking?
The Greek government is confronting a puzzle not even Pythagoras could solve. While the country appears to be meeting the stringent deficit-reduction targets mandated by the International Monetary Fund (IMF) and European Union (EU) — raising the likelihood it will receive the second tranche of IMF-EU bailout funds next month — it comes with the high price of a deepening recession. According to government figures, through the end of July, the deficit amounted to 12.1-billion euros (or 8-bln euros below the comparable year-ago level), and 3-bln below the government’s own target. This suggests Greece might realistically meet deficit targets for the full year. However, preliminary data showed that the Greek’s economy contracted by 1.5 percent in the second quarter (on a quarter-over-quarter basis), following a 0.8 percent drop in the first quarter. On a year-over-year basis, GDP has slipped 3.5 percent. Even more alarming, Greek GDP has declined for seven consecutive quarters.
