Greece Will Need More Time to Repay its Debts

by Wadsam | July 24, 2012 5:39 pm

[1]Minister Antonis Samaras expects the economy to shrink by 7%, greater than the 5% forecast by the country’s Central Bank.

Mr. Samaras said that the country has been in recession for five years, and it is not easy to return the growth until 2014.

The country has fallen behind in its austerity plans because its economy is shrinking faster than the forecast and it is expected to ask for more time to repay its loans.

Creditors from the troika (made up of the International Monetary Fund (IMF), European Central Bank (ECB), and the European Commission (EC)) arrive on Greece on Tuesday to audit Greek progress on debt reduction.

The troika will then decide whether Greece is eligible the last tranche (31.5bn Euros) of the aid package agreed in March. The decision is unlikely to happen before September, according to  a European Commission spokesman.

Greece’s budget deficit stood at 9% of GDP in 2011. The country promised to reduce the deficit below 3% of GDP by the end of 2014.

The European Commission president, Jose Manuel Barroso, is expected to pay his first visit to Greece since 2009 to meet Mr. Samaras and discuss the overall economic situation in Europe and in particular in Greece.

The IMF said it was going to support Greece to help it get “back on track”; however, reports over the weekend suggested that the IMF would refuse calls for further aid.

Greece economy is shrinking faster than most had forecast. The Bank of Greece expects GDP to shrink 5% this year in its deepest recession since the 1930s.

As a result, economists calculate that Greece may need a third rescue package worth up to 50bn Euros.

If Greece were to default on its outstanding loans that, in turn, could force it to exit the eurozone and return to the drachma.

Endnotes:
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