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Still no respite for Greece.
Amid a fresh escalation in a row over its bailout conditions, Greece’s stubbornly high unemployment rate is showing no sign of improvement.
The country’s jobless rate – which is the highest in the eurozone and has been above 20 per cent for six years – stuck at 23 per cent in November despite a general uptick in its economic prospects at the end of 2016.
It comes as the country’s creditors in the EU and the International Monetary Fund have publicly clashed over their respective forecasts for the state of the economy and the level of austerity attached to Greece’s three-year bailout programme this week.
The IMF has been accused by Athens and Brussels of an “overly pessimistic” view on the Syriza government’s ability to hit a 3.5 per cent budget surplus target over the next decade, which has led it to a wrong-headed forecast on Greece’s “explosive” debt dynamics.
The Fund warns Greece’s debt-to-GDP mountain could reach 275 per cent over the next two decades if EU creditors do not afford the country a major debt restructuring. Unemployment meanwhile will only fall to 21.7 per cent this year, while the country’s long-term growth rate was downgraded to 1 per cent, according to the IMF’s latest forecasts.
To ram home the point, the IMF also included this chart comparing Greece’s stuttering recovery to that of the US Great Depression:
Having eased back yesterday, Greece’s two-year bonds are back under pressure today, gaining 20 basis points to 9.2 per cent.
The IMF is due to deliver a major decision on whether it will contribute to the country’s €86bn bailout when finance ministers meet in Brussels later this month.
Financial involvement of the Washington-based Fund had been a key condition for the German, Dutch and Finnish parliaments to sign off on Greece’s third international bailout in six years.
The stand-off between creditors will need to be resolved before July, when Greece needs to pay back €7bn in debt repayments – obligations it cannot make without a fresh injection of bailout cash.
Analysts at Citi – who first coined the term “Grexit” back in 2010 – think the current round of brinkmanship will not lead to the country careering out of the eurozone but will heap pressure on the left-wing Syriza government, which is resisting passing any more belt-tightening measures on top of its existing commitments.
The IMF wants Greece’s primary budget surplus set closer to 1.5 per cent than 3.5 per cent and wants the shortfall to be plugged by bolder debt relief measures, much to the resistance of Germany.
This month’s February eurogroup meeting will be the last before the parliament of the Netherlands is dissolved ahead of its election. France will then elect a new president in May and Germany later in the autumn, heaping pressure on officials to narrow their differences before the summer repayments crunch.
“Due to the heavy political calendar, the window for an agreement is closing” said Jan von Gerich at Nordea.
“Offering more concessions to Greece is not a popular prospect for any of the governments facing the electorate, though neither is another debt crisis” he said.