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Greek economy seen shrinking less than 4 pct

“The economy is in recession but one that is more shallow than what was initially expected. The year should close with a performance that is better than the 4.0 percent contraction forecast,” Finance Minister George Papaconstantinou told deputies in parliament.

Greece’s recession has gained speed this year as austerity policies to shore up public finances and slash the deficit, including cuts in pensions and public sector pay and higher taxes, take a toll.

“There never was and never will be an issue of restructuring public debt,” the minister said, reiterating the government’s stance on what continues to worry markets and keep spreads of Greek government paper over German Bunds at very wide levels.

Papaconstantinou told deputies the government’s recent pledge to extend government guarantees on bank bond issues was intended to keep credit flowing to the real economy and help it recover gradually.

Greek banks have been increasingly turning to the ECB for their liquidity needs with the system’s total funding at end-July at 96.2 billion euros.

“This liquidity will be provided on one condition: that each bank submits a specific credit expansion plan. This money must and will go (to finance) the real economy, to firms and households,” he said. “This is the government’s aim.”

He said the government continues to want a strong pillar of state-controlled banks in the country’s banking system.