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Athens shopkeepers await the slump

From her shoe store in a central Athens, shopkeeper Marigo fatalistically shrugs off the expected collapse in Greek spending in the face of unprecedented austerity cuts and tax hikes.


“People already don’t have any money for shopping and the measures are only going to reduce their purchasing power,” she said, echoing the views of fellow shopkeepers from her store in one of main shopping thoroughfares of the Greek capital.

“There is a lot of fear, it’s not the right time to be spending money.”

After years of enjoying a credit-fuelled consumption boom, retailers have resigned themselves to a bleak fate of weak sales as Greeks slash spending, chastened by a dramatic debt crisis that brought the country to the brink of default.

While the confederation of Greek retailers called on its members to join a nationwide general strike on Wednesday against the new austerity drive, most shopkeepers did not want to miss out on a day of business.

“I can’t afford to lose a day of work,” said Marigo.

Before Greece’s debt crisis, booming consumption had been the engine for the Greek economy for years.

Those days are a distant memory however after the government announced unprecedented plans to cut the pay of public sector workers and retirees and hike sales tax by two percentage points to 23 percent.

“They can always raise the VAT but the less that gets sold the less money flows into the state coffers,” said George Mihail, who has run a clothing store for 40 years.

In March, he saw his sales fall by half compared to the same month last year.

Many economists fear that the austerity drive will lead to “a consumption slump that will inevitably weigh on growth,” said Laurence Boone at Barclays Capital, questioning the viability of the measures.

There are few doubts that the budget cuts and tax hikes will lead to a bout of deflation. The government forecasts that the economy will suffer a prolonged recession until 2011, with prices expected to broadly fall next year.

“Despite the fact that VAT will now constitute a quarter of the final price, we are examining how to freeze and cut prices,” the Greek retailers confederation said in a statement.

After years of steadily rising prices, Greeks are sceptical they could fall.

Household consumption took off at the beginning of the last decade with Greece’s entry into the eurozone and the public spending frenzy in the run-up to the 2004 Olympic Games.

Even now, with the country teetering on the brink of bankruptcy, cafe and restaurants are packed.

“People have gotten used to living beyond their means. They pay for everything with credit: their house, their car, their children’s education,” said Jens Bastian of the Hellenic Foundation for European and Foreign Policy.

“Now Greeks are going to save and learn to live with less money.”

Even George Mihail, the clothing storekeeper, acknowledges that the austerity measures are needed, although he is sceptical about their success in a country where tax evasion is widespread.

“Nobody wants to pay as long as there is no certainty that it won’t end up — as it often does — in the wrong pockets,” he said.

Official corruption is a recurring theme among the shopkeepers.

“Raise taxes, cut wages. Why not,” says Isidoros Zografos at his shop in the Plaka tourist district of Athens, where he sells hand-made sandals.

“But Greece’s real problem is that its leaders have lied to us for 20 years.”

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