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Wednesday, July 15, 2015

European Commission: Greek Economy Still in Danger of Collapse

A European Commission report on Greece in cooperation with the European Central Bank that was conducted on July 10 says that Greek debt sustainability has deteriorated significantly since April, when it was projected that it would be at 125 percent of GDP in 2020 and 112 percent in 2022. However, the condition of the Greek economy has deteriorated tremendously in the past few weeks, culminating in closed banks and capital controls. Based on current data, the Greek debt to GDP ratio is expected to reach 165 percent in 2020, 150 percent in 2022 and 111 percent in 2030. According to the EC, the high debt to GDP ratio and high financial needs generate concern over the sustainability of the Greek debt. In order to tackle the issue, Greece needs a major, credible reform program and a government committed to implementing it. After the program is implemented successfully, then the Commission would negotiate debt restructuring. The EC projects 2-4 percent recession for 2015, instead of 0.5 percent growth that was projected. Decline of GDP by 0.5 to 1.75 percent is also expected for 2016, with growth returning in 2017. All that under the condition that political stability returns and the banking system stabilizes again. Projections on primary surpluses have also dropped. Fiscal targets cannot be met as capital controls and lack of liquidity have shrunk the economy. Primary surplus will be anywhere between 0 and 1 percent in 2015, it is projected to be 0.5-1 percent in 2016 and 2-2.25 percent in 2017. After 2018 it is projected to go up to 3.5 percent. Privatization revenues are expected to be lower than originally estimated. The basic expectation is to reach 10 billion euros by 2022. In the worst case, they will be around 4 billion euros. The financing needs of the banking sector have increased significantly. The imposition of capital controls have hurt economic activity. According to the European Commission, the Greek banking system will need 25 billion euros.


READ THE ORIGINAL POST AT greece.greekreporter.com