As austerity bites, more Greeks feel the pain; more and more shops close in central Athens

Greeks feeling pain from austerity measures

ATHENS, Greece — The plan to rescue Greece from bankruptcy has kicked in, and with a vengeance. As the government slashes spending and hikes taxes, the deficit is way down — but jobs are vanishing, shops are closing, and on the streets gloom is prevailing.

The European Union likes the swift action on the deficit. But few Greeks are in a mood to celebrate. Many predict a fall of strikes and demonstrations as those who could afford a summer holiday return to a grim reality.

On paper, the turnaround is working. The Finance Ministry said Friday the budget deficit has narrowed by a whopping 39.7 percent on the year, slightly better than the original target. The European Union, which demanded the cuts in return for bailout loans, is positively purring.

On Thursday, the EU said Greece’s efforts to slash spending were “impressive.”

Less impressed are shop owners, who say consumers have tightened their purse strings, cutting down on the nonessentials. Higher taxes and cuts in civil servant pay are removing the boost of government spending from the economy.

“Civil servants used to come in and buy a double espresso and something to eat. Now they get a single espresso, and a cheaper sandwich,” said Constantinos Garyfallou, who spends about 15 hours a day running a coffee shop just off Athens’ central Syntagma Square and near several ministries and state-run services.

Even small changes in consumer spending — 50 cents less per customer each day — could translate to a fall in revenue for his coffee shop of about euro4,000 ($5,000) a month.

“Nobody can withstand a fall like that,” Garyfallou said.

Struggling under a mountain of debt, Greece was forced this year to ask for rescue loans from the International Monetary Fund and other European Union countries that use the euro as their currency in order to avoid defaulting on its loans.

In return, the center-left government is having to implement a strict austerity program that has seen it cut the pay of Greece’s more than 700,000 civil servants, trim pensions, hike taxes and overhaul pension and employment rules. The main target is to slash the budget deficit to 8.1 percent of gross domestic product by the end of the year, from the current 13.6 percent — more than four times the limit for eurozone countries.

The first batch of loans under the three year, euro110 billion package arrived in May, a day before Athens faced default when it had to reservice maturing bond debt. The EU has recommended approval of a second batch in September.

By then, there will probably be more shuttered shopfronts on the main streets of Athens.

In addition to the drop in turnover, banks are increasingly reluctant to hand out loans. For many businesses, the combined pinch has just been too much.

“Have you seen all the ‘for rent’ signs in the center? I’ve never seen anything like it in the past 30 years,” said Georgia Brezati, owner of a clothes shop just off the popular pedestrian shopping street of Ermou in central Athens, where a report this month by the National Confederation of Hellenic Commerce, or ESEE, said 15 percent of shops had shut down.

A recent survey by the Athens Chamber of Commerce and Industry revealed that 86 percent of the 523 businesses questioned said they were suffering cash flow problems, while a staggering 93 percent had suffered a fall in turnover due to the financial crisis.

The chamber’s head, Constantinos Mihalos, criticized the government for implementing policies “restricted only to serving the interests of our lenders, ignoring the serious problems of the market and of society in general.”

Some economists think the emphasis on austerity could be misplaced, and in the end could make repaying Greece’s debts harder by choking off growth.

Businesses in the center of Athens have also suffered from the frequent strikes and sometimes-violent demonstrations last spring, when angry Greeks took to the streets to protest the austerity program, blocking traffic from the city center for hours. Shop owners often have to close and board up their windows to protect them from youths hurling rocks and Molotov cocktails, and customers stay away.

Last May, three people died trapped in a burning bank torched by protesters on Stadiou Street, along a demonstration route.

It is that street — one of the capital’s main thoroughfares — that has been the worst hit by store closures, with about 25 percent rolling down their shutters and moving out, according to ESEE figures.

Brezati, who couldn’t afford to go on a summer vacation for the first time in years, said she kept her store open all summer but was barely seeing a couple of customers a day. Her business would survive, she explained, because she owned the store, but many around her who were renting just couldn’t make ends meet and have thrown in the towel.

Panagis Karelas, head of the of Athens Traders Association, expects closures to continue.

“There is a climate of insecurity which has hit turnover and means that Greek business owners, big or small, will not dare to invest in the future. So more businesses are closing and more people are losing their jobs,” he said.

Unemployment hit 12 percent in May, slightly up from 11.9 percent the previous month, while the country’s GDP fell by 1.5 percent in the second quarter of 2010, compared to the first three months of the year.

And the fall is set to be tough, with the government planning to loosen state control of power generation, privatize loss-making state enterprises and liberalize tightly regulated professions that are sapping productivity.

Unions have promised more strikes and demonstrations. Which will only increase the pain.

____

Associated Press writer Derek Gatopoulos contributed to this report.