Greece's austerity drive to return to fiscal health will only work if it is combined with measures to stimulate growth and investment, the country's prime minister said on Monday.
Greece's economy, which slumped 2.0 percent last year, is projected to contract by 4.0 percent in 2010 and by 2.6 percent in 2011, declines that are set against plans to cut the deficit from 13.6 percent of GDP to 3 percent by 2013.
Greek opposition parties and some economists are concerned the drastic belt-tightening agreed in exchange for a 110-billion euro ($140-billion) emergency EU-IMF loan package may plunge the economy into an even deeper recession and make key fiscal targets harder to reach.
Fears that deficit-cutting in Greece and elsewhere in the euro zone will hurt growth were at the forefront of investor concerns on Monday, sending the single currency to a four-year low and fuelling fears it may face freefall.
"This savings programme was the only way to avert the threat of a state bankruptcy," Prime Minister George Papandreou told Germany's Handelsblatt newspaper. "The programme can be sustainable only if we stimulate investment and growth."
Large, sometimes violent street protests against the pay cuts and tax rises have hit the Greek capital and labour unions have called a general strike and major demonstration for May 20. The social cost is likely to rise as the austerity measures begin to bite.
Papandreou admitted the government's austerity programme, demanded as a condition for a bailout by the EU and IMF, could cause a deep recession, but insisted the plan was achievable.
"I believe we can implement our programme. But we must ensure that the weakest in our society don't fall into the abyss," he said. "We can't push people below the poverty line.
"Part of our savings programme is therefore a safety net. That will cost money but we have to do"
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