With the shocking news just a couple of weeks ago that Greece’s economy had contracted 7% in a single quarter, came worldwide concern about the country’s future. At that rate of contraction, no level of austerity would create the savings needed to secure the EU bailout cash. But today, ahead of talks with European finance ministers, Greek prime minister, Antonis Samaras, used German newspaper Bild to call for more time to meet the bailout conditions.
A meeting taking place this week will focus on whether Greece has done enough so far (in terms of austerity) to merit the next £24.7bn tranche of bailout cash. If the country cannot secure the funds there is a chance it will simply have to default on its public debt and maybe even bust out of the euro currency altogether. To avoid such a Domesday scenario, Samaras is calling for ‘breathing space’ to make the bailout agreement work for both parties.
Of course, Jean-Claude Juncker (the head of the Eurogroup of finance ministers, and the French and German premiers, do not want Greece to default or crash out. At least, not yet. Most analysts predict that the consequences would be absolutely calamitous for scores of European banks and other governments, who have all leant money to the ailing country. So Samaras has some bargaining power to try and secure the two extra years for his country to meet the bailout conditions.
But the amount of cash needed by the country in bailouts will increase, the further its GDP contracts. Tax revenues are falling as the country goes further into recession, and at the moment there is no sign of a return to growth. How much longer the Germans are prepared to pump money into Greece (albeit through the ECB) remains to be seen. There is a theory that, if a sufficiently binding austerity deal can be struck with the other PIIGS, the German coffers may open up to save the ‘core’ eurozone and leave the Greeks to their own devices.
Meanwhile, at home in the UK, business groups are calling today for chancellor George Osborne to do more, and faster to help boost the economy. The Institute of Directors (IoD) says Osborne’s current growth strategy is ‘ineffective’, following the news yesterday that the government borrowed more than planned in July. A survey of business suggests the government should do more to cut regulation and taxes. Hardly the most enlightening stuff, but it will add to pressure on the coalition to do something about growth.
Still, the effect of Europe’s recession is being felt on the world stage, lending weight to the argument that Britain’s fortunes are tied to those of Europe. Japan has suffered an economic blow: today it posted a worse-than-expected trade deficit, partly down to severely depressed exports to Europe.
Is it us or is Europe becoming the basket case of the world?