1. Greece will miss a deficit target set just months ago in a massive bailout package, according to government draft budget figures released on Sunday, showing that drastic steps taken to avert bankruptcy may not be enough.
The 2012 draft budget approved by cabinet on Sunday predicts a deficit of 8.5 percent of gross domestic product (GDP) for 2011, well short of the 7.6 percent target.
The 2012 deficit is set to meet a nominal target of 14.6 billion euros, but at 6.8 percent of GDP it falls short of a target of 6.5 percent, because the economy will shrink further.
U.S. banks including Morgan Stanley and Bank of America have all seen their credit default swap costs jump as other banks hedge their counterparty exposures and speculative traders bet on the situation worsening.
The shortfall in the 2011 deficit target means Greece would need almost 2 billion extra euros just to finance its expenses for this year. It also means additional emergency tax hikes and wage cuts announced in the past two months to hit the target have not been enough to put Greece’s finances back on track.
“The vicious circle continues for the government,” said Yannis Varoufakis, economic professor at Athens University. “We have disappointing revenues, missed targets and this will bring new measures and new austerity.”
To persuade the troika to release the next tranche of loans, Greece has promised to raise taxes, cut state wages and speed up plans to reduce the number of public sector workers by a fifth by 2015.
Greece GDP is predicted to fall by 5.5 percent this year. Government sources said it was expected to shrink 2-2.5 percent next year
“I’m very concerned of things getting out of control,” Roubini said in an interview at Bloomberg’s Dubai office yesterday. “You need a huge bazooka of at least 2 trillion euros, but you can’t wait three months. You have to do it in the next few weeks.”
Among the measures needed to resolve the European crisis is an easing of European Central Bank policy and rates, a lowering in the value of the euro, a recapitalization of European banks and an “orderly process to allow the exit of Greece from the euro zone,” Roubini said. There also needs to be fiscal stimulus at the core of the euro zone to avoid a recession for all European countries.
“What is the likelihood of all of these things occurring in a coherent, consistent and realistic way to avoid the mess?” he asked. “I think it’s a low probability because of the political constraints.”
The European debt crisis could have consequences that would be “worse” than the collapse of Lehman Brothers, he said.
Roubini predicted the bubble in U.S. housing prices before the market peaked in 2006. His forecasts haven’t all been accurate. When the Standard & Poor’s 500 Index fell to a 12-year low on March 9, 2009, he said it probably would drop to 600 or lower by the end of that year. Instead, the U.S. equity benchmark gained 65 percent for the rest of 2009.
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