Greece creditors won't allow wiggle room for new PM

Business | 9 Jul 2019 1:42 pm

Greece’s bailout creditors bluntly rejected calls from the country’s new conservative government to ease draconian budget conditions agreed as part of its rescue program.

Conservative party leader Kyriakos Mitsotakis was sworn in as Greece’s new prime minister yesterday, a day after his resounding election victory on campaign pledges to cut taxes and negotiate new terms with international lenders.

Euro area finance ministers meeting hours later in Brussels said key targets already agreed with Athens would not be changed.

“Commitments are commitments, and if we break them, credibility is the first thing to fall apart. That brings about a lack of confidence and investment,” Mario Centeno, the Eurogroup president, told reporters after the meeting.

Greece ended its third consecutive international bailout last summer — programs that rescued the country’s euro membership and staved off bankruptcy but also deepened poverty and unemployment as successive governments in Athens were forced to make spending cuts in return for the rescue loans.

As part of those agreements, Greece has pledged to achieve government budget surpluses, before debt costs, of 3.5 percent of GDP for the coming years. That condition has shackled government spending and, critics say, stifled the country’s recovery.

Klaus Regling, head of the euro area rescue fund and lead Greek bailout creditor, said the high surplus target would remain a key condition.

“It’s very hard to see how debt sustainability can be achieved without it,” he said. “The 3.5 percent surplus is a cornerstone of the program. It was a cornerstone of the program from the beginning.”

Mitsotakis, whose late father, Constantine Mitsotakis, was a conservative prime minister in the early 1990s, has promised to make Greece more business-friendly by lowering taxes and cutting red tape. But his new government faces pressing financial challenges, including a national debt that exceeds 180 percent of GDP and banks saddled 45 percent of their loans unpaid or in trouble.

Analysts said Mitsotakis would be able to pursue growth-friendly policies despite the bailout constraints and financial challenges.

“The main take-away is that New Democracy’s government will be the first one-party government in Greece after nearly ten years,” said Spyridoula Tzima, a senior financial analyst at Global Sovereign Ratings. “Mitsotakis (has) a strong mandate to implement his policy agenda.”

 

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