Despite showing promising signs of a recovery in its economy, Greece was unable to finalize the terms for its third bailout program in a recent meeting with its creditors. Talks between the two sides fell apart after Europe’s most indebted country reported that only one-third of the prerequisites required for the bailout were implemented.
In the past, Athens has promised to adhere to these strict policies guided by its lenders in order to receive aid in the form of loans for its economic recovery. Although Greece managed to reduce its budget deficit through the loans over the years, unemployment rates still remain high and tougher austerity measures threaten the growth of the economy. According to the Hellenistic Statistical Authority, known by its acronym ELSTAT, Greece found 23 percent of its workforce without a job last October, with its unemployment rate for youths under the age of 25 up to 44.2 percent.
In its latest assessment of Greece’s economy, the International Monetary Fund projected the country’s debt to reach 275 percent of its gross domestic product by 2060. This figure sharply contrasts with the 104.9 percent debt-to-GDP forecast made by the Eurozone for the same year. The IMF’s increased concerns have delayed the fund’s support in its latest 86 billion euro deal.
While Eurozone lenders wanted the IMF to rejoin their latest aid bailout, they were unwilling to compromise on a lower target for Greece’s primary surplus as demanded by the fund. Currently, Greece must maintain a 3.5 percent primary budget surplus in order to continue receiving support from the Eurozone governments. However, the IMF is concerned that this target is too overwhelming for a recovering economy. Instead, it proposed to lower the surplus target and lighten the austerity demands.
Greece’s leftist government, led by Prime minister Alexis Tsipras, protested against further austerity measures, which he argued prevented his country from reaching its full potential. In an interview with the Greek newspaper Efimerida ton Syntakton, Tsipras said, “Under no circumstances will we have legislation for any further austerity measures—not another euro—beyond what has already been agreed upon.”
In December, Eurozone leaders put its loan program to a temporary halt after Tsipras’ government announced plans to increase pensions, lower taxes and offer free meals to children in low-income schools. Greece insisted it would use the unexpected surplus from the year to alleviate some of the burden that had fallen upon its poorest communities.
Tsipras wants Greece’s creditors to restructure the country’s loans so that the government could benefit from the European Central Bank’s current bond-buying program.
Yields on Greece’s 10-year bonds soared since news of the IMF’s January assessment broke out. Finance ministers in the Eurozone raised concerns about the country’s chances of settling negotiations, which seem to be highly unlikely before their next meeting on Feb. 20. The IMF will also have a chance to discuss the issue in its next board meeting on Feb. 6.
In a phone call with CNBC, Yvan Mamalet, a senior euro area economist at Societe Generale, shared that it would be “very difficult” for Greece to be a profitable economy again if it does not lowered its debt levels by the conclusion of the current program.
With a wave of elections set to take place in Europe over the next couple of months, Athens is under pressure to reach an agreement to settle this bailout dispute. The country is scheduled to repay up to 8 billion euro in July and could face conditions worse than when it previously accepted the aid if it fails to do so.