Greek PM warns economy to shrink by more than 5.5% in 2011

Greece will chalk up its worst-ever recession this year, Prime Minister Lucas Papademos warned on Wednesday, with the contraction in the eurozone member to be greater than the 5.5 percent forecast. "2011 will be the worst recession here ever" with gross domestic product (GDP) contracting by "over 5.5 percent" as the government has officially forecast, Papademos said at a dinner organised by the American-Greek Chamber of Commerce. Greece's economy shrank by 4.5 percent in 2010, but the austerity measures demanded by its international creditors for Greece to get a handle on its massive deficit and debt have sent the economy into an even deeper recession. "We have a hard way to go," said Papademos in his first public comments on the issue after being nominated to head a coalition government on November 11. He said the priorities of his government would be "reform of the public administration," a "radical overhaul of the tax collection mechanism", fighting tax cheats and speeding up privatisation. Papademos said a European decision to install tough new fiscal rules will help "avert a recurrence of fiscal deficits that led us to this crisis." "In 2012, private funds expected to be invested would be at least of 9 billion euros," he added. The head of the IMF mission in Greece, Poul Thomsen, said earlier Wednesday that the Greek economy will go down "six percent and maybe more" in 2011. The public deficit was likely to come in at around 10 percent of GDP rather than the target of 9.0 percent of gross domestic product. Greece has slashed spending and hiked taxes as it tries to bring down its deficit under a 2010 bailout deal with the International Monetary Fund and European Union that includes 110 billion euros ($142 billion) in rescue loans. A second deal with the eurozone agreed in October aims to shave 100 billion euros off its massive debt mountain of 350 billion euros via a voluntary write-down in the value of bonds held by private creditors. It should also get another 100 billion euros in loans and 30 billion euros in help for its banks under the eurozone deal. The IMF's Thomsen said earlier Greece cannot raise taxes further and must make dramatic cuts in public sector employment in order to reduce its massive budget deficit. ek government has preferred to raise taxes to slashing employment as it seeks to meet the deficit reduction targets agreed with the IMF and EU. However Thomsen said that policy has "clearly reached the limit" as tax hikes are falling on a limited number of taxpayers. Greece has agreed to temporarily lay off 30,000 state workers by the end of the year, but a newspaper reported last week that the scheme was progressing slowly with many choosing to retire early, costing the state even more money. Thomsen said Greece needs to "address the taboos" about cutting jobs otherwise the public deficit risks remaining stuck at around the 10 percent of GDP