World Economy

Greece Economy Could Shrink by Another 4%

Greece Economy Could Shrink by Another 4%Greece Economy Could Shrink by Another 4%

Greece avoided a catastrophic exit from the euro with this week’s bailout deal, but there’s still plenty more pain to come.

Shattered business confidence, a three-week bank shutdown and capital controls have already guaranteed another year of recession in 2015. That means the economy will have contracted for seven of the last eight years, CNN reported.

The European Commission says Greek GDP may shrink by as much as 4% this year, especially since banks have been limiting cash withdrawals during the country’s vital tourist season. Some private forecasters are predicting an even bigger fall. And the economy may not see growth again until 2017.

Greece has begun implementing painful tax rises and spending cuts, which were conditions set by creditors to get a new bunch of bailout loans worth up to $96 billion. And that new bailout will add to the country’s already enormous debt burden.

 Banks to Reopen

The Greek government ordered banks to open on Monday, three weeks after they were shut down to prevent the system collapsing under a flood of withdrawals, as Prime Minister Alexis Tsipras looked to the start of new bailout talks next week.

The decree to reopen the banks came hours after new ministers were sworn in following a cabinet reshuffle in which Tsipras replaced dissident members of his ruling Syriza party following a revolt over the tough bailout terms.

 Reforms Doomed

Former Greek Finance Minister Yanis Varoufakis said Saturday that the harsh economic reforms in Greece demanded by Athens’ creditors will fail, Sputnik reported.

Greece is seeking to restructure its $350-billion debt and has agreed to the pension cuts and tax increases demanded by its lenders in exchange for a fresh bailout package of $95 billion over the next three years.

Varoufakis stepped down on July 6, saying he was made aware that his resignation could help the prime minister reach an agreement with the country’s creditors.

“This program is going to fail whoever undertakes its implementation,” Varoufakis told the BBC. “It has failed already.”

The former minister described Greece’s reforms plan as “the greatest disaster of macroeconomic management ever.”

Varoufakis said Greek Prime Minister Alexis Tsipras had to agree to austerity reforms because he had no other choice.

 Emergency Loan

The EU approved a short-term loan of €7.16 billion ($7.8 billion) to Greece allowing it to meet a huge payment to the European Central Bank and repay the International Monetary Fund while a new bailout is still being ratified, the EU’s top official for the euro said on Friday.

“We have an agreement on bridge financing … This agreement is backed by the 28 member states,” Commission Vice President Valdis Dombrovskis told reporters.

Greece must pay the ECB a huge debt payment of €4.2 billion as early as Monday, and is in arrears to the IMF.

 €3b Loss

The three week closure of Greek banks, with ATM withdrawals limited to €60 a day, has cost the country’s economy €3 billion, which excludes lost tourism revenue, according to a report.

Estimates by the Panhellenic Exporters Association put the weekly revenue loss due to problems concerning exports at €80 million ($86 million), or a total of €240 million to date, Greece’s Kathimerini daily said. The newspaper added that the first three weeks of capital controls have cost retail trade some €600 million, with the clothing sector hit hardest.

According to the Athens Chamber of Commerce and Industry, some 4,500 containers with raw materials and finished products are currently blocked at customs, since importers cannot carry out any banking transactions.