Greece Deficit to GDP Ratio Above Forecast

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The problems in Greece and several other Eurozone economies are difficult to solve. The deficit in Greece rose because tax revenues declined and social security costs increased due to the recession. This creates further problems because the government must pay higher interest rates to borrow money because of higher default risk. The government may be forced to cut back further on spending as well, and this may deepen or prolong the recession. Portugal and Ireland face similar problems. Spain has very high unemployment of around 20%. The government has struggled to turn this around but the bursting of the housing bubble had a severe impact on the economy. Since each of these country's is in the Euro Zone they are dependent upon the ECB's monetary policy and it has been tightening because of inflation concerns in the healthier economy's. Country's in the circumstances of Greece would typically use monetary policy to cut interest rates and deflate the currency in order to expand exports to fight a recession. That option is not open in the Euro Zone.