BRUSSELS – Greece’s new Finance Minister Yiannis Stournaras, in his first meeting with leaders of the Eurozone of the 17 countries which use the euro as a currency, did not try to open negotiations to soften the harsh terms that came with bailout loans, and European leaders said they would postpone until September any further discussions about the Greek problem. Eurozone leader Jean-Claude Juncker said that Stournaras, a noted economist, “did not make any requests during tonight’s Eurogroup meeting” as far as funding is concerned, Deutsche-boerse reported.
Stournaras gave an overview of Greece’s crushing debt, which spurred an economic crisis, and reiterated a pledge by new Prime Minister Antonis Samaras to retreat on his plans to renegotiate and instead “take the necessary measures to get the program back on track,” Juncker said. Greece has to repay some 3.2 billion euros ($3.93 billion) in bonds that expire on August 20 but Juncker said a solution would be found. “There is no need to worry about Greece΄s obligations,” he said, without giving specific details.
Greece is surviving on a first package of $152 billion in loans from the Troika of the European Union-International Monetary Fund-European Central Bank and awaiting a second bailout of $173 billion. The loans come with required pay cuts, tax hikes, slashed pensions, the reduction of 150,000 public sector jobs and other harsh terms that Samaras vowed to renegotiate, but he backtracked almost as soon as he was elected. The Troika is due to deliver a report on the state of the Greek program by the end of the month. This will form the basis for discussions between the Greek government and its lenders in August, when they are due to decide on possible changes to the program, such as an extension to the fiscal adjustment period.
The Troika said any attempt to tinker with reforms could lead to the money pipeline being shut off. Greece is awaiting a $38 billion loan installment at the end of August, without which it cannot pay its workers and pensioners, even though it has stopped paying its bills or vendors. Banks, however, get paid first from all needed tax revenues, which are deposited into a special escrow account. Despite the big tax hikes, Greece’s revenues are far less than expected because the austerity measures have worsened a five-year recession, created 22.7 percent unemployment and led to the closing of 1,000 businesses a week as Greeks have slowed spending almost to a halt.
While Greece has been denied any retooling of its loan conditions, Eurozone leaders said Spain would be given an extra year to reduce its deficit and that its banks would be directly recapitalized with bailout funds instead of having those monies added to the country’s debt, conditions that Samaras considered asking for but backed away. That drew mockery from Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras, who said that Samaras was conceding to the Troika and should have asked for the same terms. Samaras is overseeing an uneasy alliance of his New Democracy Conservatives, who barely beat SYRIZA in the June 17 elections, but without enough of the vote to form a government, requiring him to bring in the PASOK Socialists and tiny Democratic Left as partners.
Ironically, the Foundation for Economic and Industrial Research (IOBE) that Stournaras founded, reported that the country’s economic condition is worse than expected, and even worse than it found just three months ago. IOBE said the economy will shrink 6.9 percent his year and unemployment will rise to 23.6 percent, giving Stournaras an even more daunting task. IOBE said the recession – worsened by austerity measures – was to blame.
In April, IOBE forecast an economic contraction of 5 percent, but it reached 7.5 percent in the second quarter as Greece was politically immobile because of two elections and had only a caretaker government with limited powers. The shrinkage is expected to hit 8 percent in the third quarter because of a sharp decline in tourism and tax revenues.
IOBE suggested that the state debt will remain at high levels, at 161.3 percent of GDP this year, while inflation will come to 1.5 percent despite reductions in market prices, the harmonizing of the price of heating oil with diesel rates from October and various market distortions which do not allow for the index to drop any further, the newspaper Kathimerini reported.
The foundation’s Vice President, Raphael Moissis, said the situation is not irreversible. IOBE’s President, Ulysses Kyriakopoulos, said it is critical, however, for the uncompetitive Greek economy to find ways to grow and said that the country is currently looking for solutions to the wrong problems, he stated. The austerity measures have largely backfired, worsening a five-year-long recession, but the Troika is insisting on more. In a separate report, IOBE warned that should the government fail to proceed with privatizations, GDP will shrink by a further 1.7 to 2 percent and another 85,000-90,000 jobs will be lost. In contrast, the efficient utilization of state assets could bolster GDP by an average of 2 percent and help create as many as 140,000 jobs, the foundation added.
(Sources: Kathimerini, Capital)