Greece’s talks with creditors remained deadlocked early this week, despite combative Greek finance minister Yanis Varoufakis reportedly being sidelined. The International Monetary Fund (IMF) piled on the pressure by saying Greece’s economy was so far off track on its bailout programme that it would need more drastic austerity or debt relief from European creditors.
That raised the prospect of the IMF withholding its part of the €7.2bn in bailout money that a deal is supposed to yield. Greece is on track to run a primary budget deficit (a shortfall excluding interest payments) of 1.5% of GDP this year, instead of the 3% surplus stipulated by the rescue package. Meanwhile, the European Commission slashed its 2015 Greek GDP forecast from 2.5% to 0.5%.
What the commentators said
We are starting to suffer from “Grexhaustion”, said Bank of America Merrill Lynch (BAML). The latest news is that there is a slim chance of a breakthrough by the next Eurogroup gathering on 11 May, which coincides with a major significant payment to the IMF. It’s not clear when Greece will run out of money, but reports suggest it can get by until June. There always seems to be “a deadline after the final deadline”.
What we know for sure, however, is that, “deal or no deal”, Greece faces bankruptcy, as Holly Ellyatt put it on CNBC. Greece’s debt pile of 180% of GDP is too high to grow out of – and “in no shape or form” is Greece inclined to undertake reforms to unleash faster growth, said Steen Jakobsen of Saxo Bank.
It’s a pity, as the ongoing stand-off has snuffed out what little growth there was, noted Mehreen Khan in The Daily Telegraph. The first year of growth since 2007 was 2014, but uncertainty over Greece’s future in the eurozone has dented confidence and spending. The economy is shrinking, says BAML, and is set to undershoot the Commission’s forecast with a 0.5% decline this year.
There are now the first signs of the Greek malaise dampening the eurozone recovery, said Capital Economics. The Business and Consumer survey from the European Commission has juddered to a halt after four months of climbing; the consumer confidence component has fallen for the first time since November. The data are a reminder “not to take a further strengthening of the eurozone’s fledgling economic recovery for granted”.