Greece recession will deepen, says Antonis Samaras
- 24 July 2012
- From the section Business
Greece will suffer a much deeper recession than thought this year, Prime Minister Antonis Samaras has said.
He expects the economy to shrink by 7%, greater than the 5% forecast by the crisis-hit country's central bank.
Representatives of Greece's three international lenders have arrived in Athens in a bid to get its deficit cutting measures "back on track".
But, Mr Samaras criticised comments by some foreign officials for "undermining" Greece's national effort.
Without sufficient progress, it may not receive the final part of its bailout worth 31.5bn euros ($38bn; £24.5bn).
Assistance for Greece totalling 130bn euros was agreed in March, its second major rescue package, with strict conditions attached that force Greece to cut debt and spending.
A deeper recession will not help Athens improve its performance, as it is already behind in its austerity plans because its economy is shrinking faster than forecast.
Mr Samaras said the country, which has been in recession for five years, would not return to growth until 2014.
He is expected to ask for more time to repay its loans.
The Bank of Greece had been expecting GDP to shrink 5% this year, which would have been its deepest recession since the 1930s.
Economists calculate that Greece may need a third rescue package worth up to 50bn euros.
Greece's performance is being assessed by the International Monetary Fund (IMF), European Central Bank (ECB) and European Commission, who together have been dubbed the troika.
The IMF said it was "supporting Greece in overcoming its economic difficulties" and would work with the country to get it "back on track".
However, reports over the weekend suggested that the IMF would refuse calls for further aid.
Meanwhile Greece is expecting another high-profile visitor this week.
The European Commission president, Jose Manuel Barroso, is planning his first visit to the country since 2009.
"The purpose of the meeting is to meet Mr Samaras and discuss the overall economic situation in Europe and in particular in Greece," Mr Barroso's spokesman said.
He said it was "a regular meeting" and that the preparation for the talks had been "under discussion for some time".
Greece has promised to reduce its budget deficit to below 3% of annual national income as measured in Gross Domestic Product (GDP) by the end of 2014. At the end of last year, Greece's overspend was equivalent to 9% of GDP in 2011.
Successive Greek governments have managed to trim 17bn euros from government spending. That has brought the country's total debt down from more than 160% of GDP to 132% according to official figures released on Monday.
Under the terms of its international loan agreement with the troika, Greece has vowed to reduce its total debt to 120% of GDP by 2020.
But, Prime Minister Antonis Samaras would have had to have raised another 12bn euros through higher taxes and the sale of public assets such as the country's loss-making railways to have met this bailout target.
August debt payment
The re-run of general elections and political instability as parties scrambled to form a governing coalition has delayed work by the troika and the government to agree a credible plan to restore the nation's finances.
On Monday, a European Commission spokesman said the troika would not be in a position to report its findings and release the final 31.5bn euro instalment of bailout money until September.
"The Commission is confident that the decision on the next disbursement will be taken in the near future, although it is unlikely to happen before September," he said.
That leaves Greece in a difficult situation. A 3.8bn euro debt repayment to the ECB falls due on 20 August. Without the troika money, the ECB may be forced to step in to provide temporary aid.
But further debt repayments are due in September so failure to secure the bailout money could push Greece to the brink of insolvency.
If Greece were to default on its outstanding loans that, in turn, could force it to exit the eurozone and return to the drachma.