Just How Painful Will Greece's Recovery Be?

Greece's statistics service ELSTAT said on Wednesday that gross domestic product in the country shrank 1.8% from the first to the second quarter. That's the steepest quarterly decline since the nation's economy fell into recession at the end of 2008.
And the rest of the year probably won't be any better. Consumers will spend less as they start to feel the effects of the austerity measures that were a stipulation of the 110 billion-euro bail out Greece got from the IMF and the EU last May. And if the government can't cut the deficit by collecting tax revenues - a challenge in a country where people have long evaded income tax - it may be forced to impose a new indirect tax on the petrol that's used to heat homes in winter. That's after already having increased value-added tax on goods by 4%, to 23%, earlier this year.
Greece could find itself caught in a vicious circle, says Yiannis Tsarmougelis, an economics professor at the University of the Aegean, as attempts to tackle debt by imposing new taxes will only further stifle economic growth. "If the government must impose new measures, the economy could even shrink by more than 4%," by year's end, Tsarmougelis says. "It all depends on how well they do collecting tax revenues."