No wonder the Greek finance minister looks resigned over possible bailout deal
Euclid Tsakalotos failed to raise a smile. As the Greek finance minister moved past waiting reporters, he turned and said that only two or three more issues remained on the table unresolved. In other words, an €86bn (£61bn) bailout package was .
It was a moment to punch the air in defiance. But he seemed resigned and tired. And well he might be. Not only must the rescue package receive the approval of the German government and its , he must know that many of the projections he has used to convince lenders they can be repaid are based on fantasy figures.
Those are the words of Jonathan Loynes, the chief European economist at consultancy Capital . He said the plan for a third rescue in five years rests on initial forecasts for the economy and public finances that are “little short of fantasy”.
Recent survey evidence suggests the economic impact of capital controls has been catastrophic, he said, leading to a collapse in economic activity “to levels way below those seen even when the economy was contracting at annual rates of 9% in 2010/11”.
That means the past eight months of wrangling between the new Syriza government and the troika of the EU, International Monetary Fund and European Central Bank have not only handed the Greeks a tougher set of austerity measures than was probably available in January, but also crashed the economy. Tsakalotos must be proud.
Loynes said that such extreme weakness may end when the are lifted and some kind of normality returns to corporate and domestic life, “but it is not clear that will be very soon. And even if it is, GDP could still fall much more sharply this year than the 2.1% to 2.3% estimate reportedly factored into the bailout’s fiscal projections.”
He concluded: “We expect a contraction of about 4% or worse. And lasting damage to Greece’s economy and financial system, as well as its fundamental lack of competitiveness, could prolong the slump into next year and beyond.”
It appears that Tsakalotos will get his way. The Germans, the Finns and the Dutch, who would happily see the Greeks exit the eurozone, will raise multiple objections but will then vote through the deal.
Britain’s threatened exit from the EU probably plays a big part in this thinking. If is refused a third bailout and exits the euro, Britons will view the whole EU project with more contempt and be more likely to vote to leave.
But it means is kicking yet another problem down the road and one that will blow up again, possibly with even more collateral damage to the world economy than it managed this year. Greece is being asked to transform a culture of weak government, corruption and bureaucratic nepotism in a matter of a few years, based on a false premise that it can mimic the productivity of its northern European partners. It can’t work.