There were further fears for debt-stricken Greece today after the country’s central bank, the Bank of Greece (BoG), said economic growth will fall this year by 2%, worse than the Government’s forecast of between 1.2% and 1.7%.
According to the BoG: “The Greek economy has fallen into a vicious circle with only one way out: the drastic reduction of the deficit and debt.”
The report warned that the euro zone’s economic recovery remains fragile, having depended on fiscal stimulus, which must gradually be reversed as it is resulting in large budget deficits.
The Bank’s annual monetary policy report comes prior to the European Union summit which may discuss Greece’s debt crisis.
At the EU summit scheduled for later this week, it is unsure whether euro zone countries will discuss Greece’s current situation.
Last week, the euro tumbled after Greek Prime Minister, George Papandreou, warned that Greece might have to seek help from the International Monetary Fund (IMF).
Mr Papandreou told the EU parliament in Brussels: “This is where Europe must come in and say ‘OK in this case we either can provide what an IMF would provide … or in the end Greece may have to choose the option to go to the IMF’.”
Greece is currently taking action to reduce its public deficit from 12% to 8% of GDP this year.
The country currently has the highest debt of the 16-member euro zone, at €300 billion (£273 billion) and its economy is considered to be the euro zone’s weakest.
Mr Papandreou is seeking assistance from fellow euro zone nations to make it cheaper to borrow funds on the international financial markets.
However, tension is growing between Greece and some of its fellow euro zone nations.
Germany said euro zone nations are in serious breach of fiscal rules should be expelled from the group.
Yesterday, German Chancellor Angela Merkel told Mr Papandreou that the EU was prepared to “do what is necessary to preserve the stability of the euro zone”.