Greece de­fies cred­i­tors over more cuts as econ­omy shrinks un­ex­pect­edly

The Malta Business Weekly - - FRONT PAGE -

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.

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