Greece’s creditors, the European Commission, the International Monetary Fund (IMF) and the European Central Bank (ECB) – known as the Troika – have set "unrealistic" fiscal target for Greece which is negotiating a third bailout, according a report by the London-based National Institute of Economic and Social Research (NIESR).
The Greek economy is expected to contract sharply again, with GDP falling 3% in 2015. Our latest analysis on Greece: http://t.co/aAsoN8p6Lz
— NIESR (@NIESRorg) August 5, 2015
One of its authors, Jack Meaning, Research Fellow at NIESR told Sputnik: "The outlook for the country is really dire and without some serious changes, we think they’re going to be depressed for the near- and medium-term."
The Troika has imposed a whole raft of new fiscal policies on Greece, including massive changes to its generous pensions system and reforms of its lax tax system, plus a privatization program. NIESR's analysis finds that the proposed changes to VAT outlined by the government would exacerbate the current situation, prolonging the recession even further.
The NIESR report concurs with the IMF’s conclusion that Greece's current level of public debt is "unsustainable," with its banking system dependent on emergency liquidity assistance from the ECB.
Restructuring, or writing off, $103 billion (55 percent of Greek GDP) would provide Greece with, at least, a chance of lowering its debt stock to the target levels of the original bailouts (around 120 per cent of GDP in 2020).
Jack Meaning told Sputnik: "The changes are having a really depressing effect on the economy. In terms of realism – if you look at our forecast of debt-to-GDP ratio – if there’s any chance of them to the 120 percent they initially decided they were targeting, there’s going to have to be a serious re-evaluation of the debt stock that’s outstanding."
Troika Bandits Want More from #Greece http://t.co/XTeD2z4NOT @StephenLendman #ThisIsACoup pic.twitter.com/VtDzQBSiDQ
— ZaRdOz420WPN (@ZaRdOz420WPN) July 29, 2015
He believes there may come a point where Greece would be better off outside the Eurozone than in. He told Sputnik:
"The more severe the contraction and the worse the outlook becomes for Greece within the Euro area, the more appealing the alternative of life outside the Euro area is going to become."
Polticizing the Eurozone
The Greek crisis has also raised huge issues about the Euro currency itself. The NIESR report says that the idea that no country can be allowed to leave the Euro has been openly challenged.
The quantitative easing program consists of the ECB creating electronic money to buy sovereign bonds and securities from European institutions and national agencies in order to boost the economy. However, the ECB will only hold a small percentage of purchased assets (20 per cent) on its balance sheet, limiting risk sharing between member states.
NIESR also maintains that the "unnecessary interference with the functioning of the ECB by politicizing its profitability limits its room to support the Euro Area."
Dr Angus Armstrong, Director of Macroeconomics at NIESR, argues that by seeking to limit or constrain these potential losses:
"Politicians are creating a risk of turning the monetary union into a system of fixed exchange rates."
