Negative end-of-year developments stymie Greek program; prospects for economic recovery

23 December 2016
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Negotiations over the Greek adjustment program (third bailout) sputtered to a standstill this week, as the now very publicly aired disagreements between the leftist government in Athens with the IMF and German leadership, on the one hand, as well as between the Commission and the IMF, on the other hand, spell delays for a second review of the program and blocked short-term Greek debt relief measures.

The latter, which were agreed to at a Dec. 5 Eurogroup meeting, fell victim to an abrupt announcement by the Greek premier of a one-off spending measure for nearly 1.6 million pensioners in the country. The 617-million-euro “holiday bonus” was unveiled by Alexis Tsipras in a televised address, with beneficiaries being anyone receiving under 850 euros a month in total social security benefits. Nevertheless, the spending scheme triggered a freeze of the debt measures, as European creditors – mostly echoing the stricter stance of the German finance ministry — asked the European Stability Mechanism and Eurogroup to examine whether the outlay violated the third memorandum’s provisions.

With the second review of the Greek program now being bumped to late January 2016, at best, a 6.2-billion-euro tranche in bailout loans remains in limbo, prospects for re-inclusion of Greek bonds in the ECB’s QE are stymied and the overall economic and investment climate suffers due to increased uncertainty. The negative end-of-year developments come after the Greek economy showed signs of recovery in the second half of 2016.

As “Naftemporiki” reported on Thursday, back-and-forth statements between Athens and Berlin, at the highest level, worsened an already tense situation, with German federal elections in the autumn of 2017 allowing little room for a more flexible handling of negotiations on the Greek bailout program.

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