Greek retailers fear measures will be kiss of death

Sitting behind a "60% OFF" sign, Odysseas Maniadakis waits patiently for the odd customer to stroll into his shop and inspect his vases and candles. If times are hard, then for Maniadakis, as for most Greeks, they may soon get far, far harder.

"If the government cuts salary bonuses and hikes VAT more, not a soul will step into this store," said the 30-year-old. "We've already reduced prices for some products but if we do it for everything we won't even cover our basic costs."

Austerity measures expected to be agreed with the European Union and the IMF soon to secure emergency funding and avoid default, are likely to be unprecedented in their severity.

Athens is set to cut salary and pension supplements and bonuses and further hike VAT, already raised to 21 percent this winter, to shrink its bloated budget deficit by more than 20 billion euros in two years.

Retailers say this would be the kiss of death for them.

"These measures are deadly," said Giorgos Basdekis, 60, standing alone in his central Athens furniture shop. "Our sales have dropped already and the VAT hike will kill us."

Retail sales have been declining in the double digits since last year as Greece's once roaring economy slid in recession. In February they rose 1.7 percent, data showed on Friday, but economists say the slight rise was mainly the result of an extended post-Christmas sales season.

"Consumer spending is expected to fall sharply in the coming months as sentiment is revisiting historic lows because of the high uncertainty over the economy's short-term outlook," said Nikos Magginas, an economist at National Bank of Greece.

End of Era

Greece's once booming economy was based on consumption. Joining the euro zone in 2001 brought interest rates down, and people rushed to get cheap mortgages and loans to fill houses.

But huge budget deficits debts have plunged Greece into a deep crisis, shaking international markets and the euro. The EU and the International Monetary Fund have stepped in to rescue Athens and stop the crisis spreading to other euro zone periphery countries.

Analysts think the 240 billion euro economy is likely to contract by more than last year's 2 percent in 2010 as the sharp belt-tightening and rising unemployment take a toll.

According to union leaders, the austerity package means public sector workers and pensioners will have to forget the two additional bonus monthly salaries they were getting as the government scrambles to drastically cut its wage bill and meet a fiscal adjustment of at least four percentage points this year.

Further indirect tax hikes that may raise the VAT to 23 percent or higher are certain to erode purchasing power. The malaise is already being felt even at news kiosks where Greeks buy everyday items from cigarettes to bubble gum.

"People stand here reading the front pages of newspapers and swear because they don't know what tomorrow will bring," said Dimitra Pitsopoulou, 52, from inside a central Athens news stand. "We've lost all hope, there is no light at the end of this tunnel."

She said people were buying fewer or cheaper products, such as cigarettes and the money she makes will soon not be enough to pay the rent for the one-square meter kiosk.

"The only way out of the crisis is to boost the private sector, which is supporting the entire economy, leave it out of these measures," Pitsopoulou said.

[Source: By Renee Maltezou and George Georgiopoulos, Reuters, Athens, 30Apr10]

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