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08/12/2016

Greek economy faces ‘irreparable damage’

Elections

Greek economy faces ‘irreparable damage’

When economic reform worked: The debasement of the Drachma (1953).

[Tilemahos Efthimiadis/flickr]

Greece’s economy faces the risk of “irreparable” damage as the political crisis of recent days takes on increasingly serious proportions, the country’s central bank chief said in prepared speech remarks yesterday (15 December).

Prime Minister Antonis Samaras has brought forward a presidential election by two months to end political uncertainty but faces an early parliamentary election, with no outright winner, if his candidate loses. Polls show the anti-bailout, leftist Syriza party would win a snap vote.

>> Read: Greece prepares for snap elections

“The crisis in recent days is now taking serious dimensions, liquidity in the market is decreasing at a fast pace … and the risk of irreparable damage for the Greek economy is now great,” said Yannis Stournaras, a former finance minister who now heads the Greek central bank.

Current Finance Minister Gikas Hardouvelis also warned in comments published on Monday that the country faces financial trouble after February if it fails to elect a president, prompting the opposition Syriza party to accuse the government of blackmail to win support.

Samaras and Syriza leader Alexis Tsipras have been trading barbs ahead of the presidential vote starting on Wednesday as they vie for support from parliamentarians who will choose the new head of state.

Greece would face funding problems if a snap election fails to produce a government that can wrap up a pending bailout review due to unlock €7 billion in aid, Hardouvelis told the financial daily Naftemporiki.

“If there is no government to conclude negotiations, there will be an important funding gap,” he said. “This deficit is manageable until February, and not easily afterwards, since from March onwards our needs will increase.”

He also warned Greece would post lower growth next year if a president was not elected. Greece emerged this year from a six-year recession and the €182-billion economy is expected to expand by 0.6% this year and 2.9% in 2015.

Later on Monday, Hardouvelis said EU and IMF inspectors are expected to return to Athens early in January and conclude the review before a 26 January meeting of euro zone ministers.

Greece needs to repay IMF loans worth about €2.8 billion by the end of March. Its next major funding hurdle comes in July and August when it has to repay over €5 billion in maturing debt.

The presidential vote will be held over three rounds starting Wednesday and ending on 29 December.

Background

At the European elections, for the first time in the political history of Greece, a leftist party won the first position in the EU elections, beating the ruling center-right New Democracy, and putting into question its political legitimacy. 

>> Read: Leftist Syriza wins Greek EU poll, requests early general election

The leftist Syriza got 26.6% of the vote and 6 MEP seats, followed by ruling center-right New Democracy with 22.7% and 5 MEP seats.

Neo-Nazi Golden Dawn ensured the third position getting 9.4% of the vote (3 seats) while center-left Elia, a coalition of socialist movements led by the ruling Pan-Hellenic Socialist Movement (Pasok), obtained 8.% and 2 MEP seats.

In the 2009 EU elections, Pasok won 36.7% of the vote.

The newly established Potami party, which has not revealed which European political family it will be affiliated with, comes in fifth, with 6.6% and 2 MEP seats. Meanwhile, the Communist Party received 6.1% of the vote and 1 MEP seat, and the Eurosceptic right-wing party Independent Greeks, 3.4% and 1 seat.

Timeline

  • 17 December: Vote for President begins in Parliament, last round to be held on 29 December.