|Angela Merkel, German chancellor, speaks to François Hollande, French president, with Alexis Tsipras, Greek prime minister, on the right, Brussels, July 12, 2015|
Greece faces two years of recession as it implements budget cuts and tax rises that are required by its latest €85bn bailout agreement, European Union officials have said. Alexis Tsipras, Greek prime minister, expressed confidence that the deal would be completed.
The Wall Street Journal reports that the country’s economy is expected to shrink 2.3% this year because of the recent months of turmoil and the cuts required by the bailout, the officials said, citing the latest estimates from the institutions that have been negotiating Greece’s new aid program. Next year, it is projected to contract 1.3%. Only in 2017 is the economy predicted to return to growth, expanding an expected 2.7% that year and 3.1% in 2018.
The Greek parliament is due to meet today and vote on the country's third bailout deal, reached with creditors after marathon talks on Tuesday. Apart from the Greek parliament, the new deal has to be agreed by Eurozone members.
The 29-page agreement gives the bailout institutions — the European Commission, European Central Bank and International Monetary Fund — sweeping control of large areas of Greek policymaking. It says: “The [Greek] government commits to consult and agree with the European Commission, the European Central Bank and the International Monetary Fund on all actions relevant for the achievement of the objectives of the memorandum of understanding before these are finalised and legally adopted.” See here.
However, the Financial Times reports that a German finance ministry paper conceded that “large parts” of the reform programme agreed at a last ditch leaders' summit last month, were included in the outline deal, ranging from tax collection to competition in tourist property rentals.
But Germany says some measures are delayed until October or November and some others “are not yet specified”. "Berlin is particularly concerned about a proposed delay in establishing a planned €50bn privatisation fund, which is due to take control of Greek state assets."
“Despite the obstacles and trip-ups that some are attempting to put in our path, I am optimistic that we will reach an agreement that will bring an end to economic uncertainty,” Alexis Tsipras said on Wednesday.
The three-year programme entails a “fiscal adjustment” of up to 5% of Greek GDP, and there is a target of a primary deficit, which excludes interest payments, of 0.25% of GDP this year. Without the new measures, Greece would have had a primary deficit of 1.5% of GDP this year, the document says.
By 2016, Greece would be expected to meet a primary-surplus target of 0.5%, followed by a 1.75% primary surplus in 2017. From 2018 onward, the agreement calls for the government to produce a 3.5% primary surplus every year.