Greece's GDP dropped by non-seasonally adjusted annual rate of 7% in Q4

Cindy Allen

ATHENS, Greece , February 14, 2012 (Associated Press) – Greece's economy remained stuck in a deep recession in the fourth quarter, according to official figures released Tuesday that confirm the painful effects of austerity reforms intended to lower debt.

Gross domestic product dropped by 7 percent on the year in the fourth quarter of 2011, in non-seasonally adjusted terms, the Greek Statistical Authority said.

The struggling eurozone country has been shut out of long-term bond markets since 2010, and is surviving on rescue loans from European Union countries and the International Monetary Fund. But harsh austerity measures demanded in return for the emergency loans have hammered the economy.

Greece's economy has been in decline since late 2008, with successive quarterly contractions since then, with the exception of the first quarter of 2010.

Parliament early Monday approved a new round of austerity measures, slashing the minimum wage and planning mass layoffs in the civil service. The measures were demanded by the EU to approve a second massive bailout deal. Eurozone finance ministers also want Greece to detail how it will cover a remaining budget gap of euro325 million ($428 million).

But a meeting of the 17 ministers originally expected Wednesday was called off, with Jean-Claude Juncker, who chairs the ministers' meetings, saying "further technical work" was needed by Athens. The ministers will instead hold a conference call Wednesday afternoon, and a full meeting Monday.

Juncker, who is the prime minister of Luxembourg, said the technicalities included details on covering the euro325 million ($428 million) gap and the lack of "the required political assurances from the leaders of the Greek coalition parties on the implementation of the program."

In Athens, a government official said the financing gap was discussed during a Cabinet meeting chaired by Prime Minister Lucas Papademos. A final decision laying out the details of how to cover the gap will be made Wednesday, after discussions Tuesday night with debt inspectors from the EU and International Monetary Fund, the official said. He spoke on condition of anonymity because talks were still in progress.

The official said letters from the party leaders promising implementation of the measures would also be ready Wednesday morning.

Earlier in the day, government spokesman Pantelis Kapsis had said funds to cover the euro325 million would come "from spending cuts from ministries, from areas including defense."

The last-minute cancellation of the finance ministers' meeting — which was expected to give the green light for a key debt-relief deal with private creditors linked to the bailout — shows the eurozone wants much tougher guarantees now from Athens before giving it an extra euro130 billion ($171 billion) in rescue loans, on top of euro110 billion granted in 2010.

Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.

But tension is also showing within Greece. Dissent over the early Monday vote saw a junior coalition partner withdraw its support from the government, while the two remaining parties expelled 43 of their deputies in parliament for voting against the measures and six Cabinet members resigned in protest against the austerity.

Papademos on Tuesday described the vote as being of "historic" importance and indicated there would be no immediate Cabinet reshuffle — one of the ministers who resigned had been persuaded to stay on, while the other five would not be replaced for now.

The vote took place after severe rioting Sunday night in Greek cities that saw dozens of buildings, shops and cafes looted and burned.

The National Confederation of Greek Commerce on Tuesday said 153 businesses in Athens had been damaged, 45 of them destroyed — figures that are higher than initial police estimates released Monday.

More trouble was reported Tuesday in the western Greek town of Agrinio, where police said a group of about 50 youths smashed banks, storefronts and a post office before clashing with police.

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