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As Greece struggles with soaring debt & slumping incomes, optimism ebbs

One of the most difficult things to find on the streets of Athens these days is an optimist.

business Updated: Mar 24, 2010 21:42 IST

One of the most difficult things to find on the streets of Athens these days is an optimist.

“They’ve ruined us, these measures,” said Thanassis Apostolakis, a mover, referring to the government’s austerity plan. “Even these are getting expensive,” Apostolakis said, tossing a half-smoked cigarette — now subject to higher tobacco taxes — in the gutter.

There is no question that Greece is in for several years of slumping incomes, slower growth and social strife as the government cuts spending to reduce budget deficit. The Greek Central Bank warned on Monday that growth could slump 2 per cent.

The runaway spending that provoked Greece’s debt crisis and unsettled markets worldwide is a symptom of much deeper problems, including an uncompetitive economy and tax evasion.

But Greece’s predicament may also have an upside: Things are so bad that even a little reform would go a long way to stimulate growth — as long as the government can maintain public support. “The crisis is an opportunity for us,” Louka T. Katseli, Greek economy minister, said.

Government ministers are facing a formidable to-do list: They must avoid defaulting on Greece’s debt, win over international bond investors and placate Greece’s partners in the European monetary union. On Tuesday, Germany seemed to soften its stance, indicating that it would agree to allow countries of the euro zone to help finance a bailout of Greece — but only as a last resort and under stringent conditions.

On the streets of Athens, protests continued on Tuesday over the austerity measures that have led to lower pay for civil servants and higher taxes. Yet there is still a remarkable amount of sympathy for austerity measures.

To combat rampant tax evasion, the government plans to impose minimum taxes on trappings of wealth like luxury cars, vacation homes and boats. A move to curb tax evasion could depress spending on luxury goods. While that might help Greece reduce its trade deficit, it could hurt car dealers and other merchants.

Greece’s share of world exports has plunged 25 per cent since 2000, according to Barclays Wealth. Greece also ranks near the bottom of all developed countries in attracting foreign direct investment. Businesses say they are ready to invest in Greece, if the government will only help.

First Published: Mar 24, 2010 21:41 IST