Greece defies creditors over more cuts as economy shrinks unexpectedly
The standoff between Greece and its creditors has escalated, with the embattled Athens government vowing it will not give in to demands for further cuts as data showed the country’s economy unexpectedly contracting.
As thousands of protesting farmers rallied in Athens over spiralling costs and unpopular reforms, the Hellenic statistical authority revealed that Greek GDP shrank by 0.4% in the last three months of 2016.
After growth of 0.9% in the previous three-month period the fall was steep and unforeseen. On Monday the European commission announced that the eurozone’s weakest member was on course to achieving a surplus on its budget of 2.3% after exceeding its 2016 fiscal targets “significantly”.
The setback came as prime minister Alexis Tsipras’ lefist-led coalition said it would not consent to additional austerity beyond the cuts the country had already agreed to administer under its third, EU-led bailout programme.
Speaking on state TV, the digital policy minister Nikos Pappas, Tsipras’ closest confidant, insisted that ongoing differences between the EU and International Monetary Fund over how to put the debtstricken state back on the road to recovery were squarely to blame for the failure to conclude a compliance review at the heart of the standoff. The IMF has argued vigorously that extra measures worth 2% of GDP will have to be enforced with immediate effect if Greece is to achieve a high post-programme primary surplus of more than 1.5%.
“The negotiations should have ended. Greece has done everything that it was asked to do,” he said and added there would be “no more measures”.
The future of the €86bn financial aid programme is contingent on Athens implementing agreed economic reforms. The IMF has repeatedly said it will not sign up to the programme unless the crisisplagued country is given more generous debt relief in the form of a substantial write-down.
With Greece facing a €7bn debt repayment to the European Central Bank in July, fears of a Greek default have once again hit markets with shares falling and interest rates on Greek debt rising.
But Tsipras is also under pressure from back-benchers in his fragile two-party administration. After seven years of adopting grueling austerity in return for emergency bailout aid many are openly questioning the wisdom of applying yet more measures that have already put Greece in a permanent debt deflationary cycle.
All eyes are now on a flying visit Europe’s economics chief Pierre Moscovici will make to Athens. Government sources said they were hoping the EU commissioner would come with an “honourable compromise” acceptable to all so that stalled negotiations could resume with the return of auditors as soon as possible.
But the eurozone chief, Dutch finance minister Jeroen Dijsselbloem, warned it was unlikely a solution would be found before the next meeting of finance ministers representing countries in the currency bloc on 20 February – raising the spectre that Greece could be headed for a rerun of 2015 when it teetered towards euro exit.
On Monday, Christine Lagarde, the IMF’s managing director, raised the stakes further saying Greece could not be singled out for special treatment. “We have been asked to help, but can only help at terms and conditions that are even-handed,” she told Reuters. “In other words we cannot cut a special sweet deal for a particular country because it is that county.”
Despite the delay, Greek officials have repeatedly voiced optimism that the review will soon be concluded. Amidst the uncertainty the real economy has been put on hold with non-performing bank loans and private debt ballooning. This week the head of the Greek public power corporation, DEH, said lack of liquidity was such that the body was on the verge of bankruptcy.