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Greece’s financial problems mount

EU inspectors seek $14b in cuts

ATHENS — Inspectors overseeing Greece’s faltering financial recovery have returned to Athens to push the country back on the road to painful reform. But as Greece’s economic problems pile higher, the task appears insurmountable.

Months of political uncertainty and the spread of the eurozone’s crisis to major economies such as Spain and Italy are pressuring Greece’s new coalition government to slash spending or face the threat of an exit from the 17-country group that uses the euro.

Greece needs to cut an additional $14 billion in spending over the next two years to meet deficit targets and is likely to impose more pay cuts through pension and benefit caps.

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If it does not meet the deficit targets, its eurozone partners could decide to stop giving it financial aid, potentially forcing it to drop out of the eurozone.

The heads of an inspection team from the European Union, European Central Bank, and International Monetary Fund — collectively known as the troika — arrived this week in Athens to pick apart Greece’s deficit-cutting proposals.

They will return in September before making their final assessment.

Prime Minister Antonis Samaras, meanwhile, met Thursday with EU Commission President Jose Manuel Barroso.

Greeks had been promised some relief from the severe recession after the country won major debt restructuring and rescue loan deals this year, following another round of salary and benefit cuts. But that prospect has already faded.

Greece’s economy is in its fifth year of recession, during which its economic output has dropped by about 20 percent.

Samaras has likened the period to the Great Depression in the United States in the 1930s.

On Tuesday, he delivered more bad news: The economy would contract a further 7 percent in 2012, far more than the 2.8 percent predicted last year.

Unemployment, originally forecast to settle around 18 percent, has reached 24 percent.

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A national association representing small businesses said it expects 67,000 more companies to go bankrupt in the next 12 months.

The economic downturn is depriving the government of much-needed revenue with which to lower its deficits.

Some blame the severity of the recession on the bailout creditors’ insistence that the government cut spending as a way to lower the deficit.

In the past two years, eurozone members and the IMF have granted Greece two successive rescue loan packages worth $121 billion and $158 billion — a higher combined amount than the country’s gross domestic product — but tied the loans to Draconian demands for fiscal changes to cut overspending.

The main targets include cutting the budget deficit from a runaway 15.8 percent of gross domestic product in 2009 to around 2 percent over five years, while overhauling the public sector and services and market rules, and cutting 150,000 government jobs.