Greece in need of wide debt relief to avoid depression

Greece’s economy will be suffering from the austerity measures demanded from its creditors and could remain trapped in a permanent depression unless it receives a substantial debt relief, according to the National institute of Economic and Social Research (NIESR).

If the ‘troika’ (collectively the European Commission, the European Central Bank and the International Monetary Fund) continue to insist on unrealistic fiscal targets, the Greek economy will remain in depression [1].

An NIESR report has suggested that the Greek GDP will fall to less than 70% of that, compared to its pre-crisis peak.

This would mean nearly a third of the Greek economy will be defunct, with little sign of recovery thereafter.

Simon Kirby, head of macroeconomic modelling at NIESR, has said a “permanent fiscal transfer” from the healthier Eurozone countries is needed if Greece is to have any hope of reducing its debt to 120% of GDP by 2020, as was originally envisioned [1].

The report said a large cut of 55%, or rather €95 billion was needed, higher that the IMF’s estimates; they have said they will not take part in any further bailouts unless Greece’s debt is cut by 30% [2].

Finance ministers across Europe have been concerned that if Greece is able to get significant debt relief, other countries will be less worried about making their own spending sustainable in the future and this could trigger problems for the rest of the Eurozone.

Along with the strict VAT system to hit Greek consumers already, it seems they still have a boundless journey ahead.

[1] Business Insider UK. REPORT: Greece needs €95 billion in debt relief to avoid permanent depression – twice as much as the IMF says.
[2] The Guardian. Greece needs wide debt relief to avoid permanent depression, thinktank warns.