The fact that Greece is on the verge of financial collapse gives it an edge in negotiations as it may get more concessions from creditors, said an analysis in Politico magazine.
In an article titled “The silver lining in Greece’s collapse,” Matthew Karnitschnig argued that Greece’s real problem is not debt but the economy, and its trump card in negotiations is spiralling the economy.
Greece is back into recession as the OECD forecasts 2015 growth at 0.1% when at the end of last year the forecast was 2.3%. “Uncertainty related to the reform program and deteriorating liquidity conditions have undermined business confidence and investment,” the OECD said.
“The Greek economy is falling off a cliff,” said Berenberg bank economist Christian Schulz. As consumer and business confidence have dropped, Athens reported that the unemployment rate remained well over 25% in March with more than 1.2 million Greeks out of work, while another 3.4 million Greeks out of a total population of 11 million are classified as “inactive.”
“The slump in the economy means that all of the projections that underpinned Greece’s bailout agreement have been thrown out of kilter,” says Karnitschnig. Thereby creditors have lowered their expectations, asking for lower primary surpluses and are making more concessions to its bailout.
The writer quoted economic analyst Manos Giakoumis of analysis firm Macropolis saying, “The institutions are adapting to the real situation. The new targets have to take current developments into account and adjust projections accordingly. It has to be something reasonable and achievable.”
Under the original bailout terms, creditors had asked for a primary surplus of 3% of GDP in 2015 and 4.5% in 2016. Now they have lowered that to 1% and 1.5% respectively, while Athens claims it can squeeze out just 0.6%.
This means that the SYRIZA-led government has millions available for social spending as promised to its voters.
Furthermore, if the Greek government manages to secure a deal with creditors, it is likely that the 35 billion euros Greeks have withdrawn from their bank accounts will return to the banks. This way Greece’s fragile banking system will become more stable.