That leaves Greece in a difficult position, with an economy that some analysts say will shrink by 7 percent this year — far worse than the 4.2 percent expected just months ago when the bailout agreement was inked. Greece’s new prime minister, Antonis Samaras, has said he will hold to the terms of the bailout, but his allies have signaled doubts about whether that will happen.
“It is very difficult, almost impossible,” to make $14 billion in cuts in 2013 and 2014, the head of the Socialist party, Evangelos Venizelos, told Greece’s Vima radio Tuesday. Greek leaders would like more time to meet their financial targets, a change that would probably require Europe to put up more money to support them in the meantime.
But German officials have said they will not send any new money to Greece as long as the government does not have a track record of successfully implementing the overhauls that international lenders wrote into the bailout this year. That track record could take a year to build, the Germans say, and Greek governments have struggled for more than two years to make fundamental changes to the way their economy is run. With new signs that global growth is slowing, recovery may be even more difficult.
Around election season this year — which lasted from April until June because the initial May vote failed to produce a government — little work on economic overhauls took place, Greek and international officials say. After the May election, the already-slow work of privatizing state-owned assets was put on hold for a month. And a June income tax deadline that fell days before the second parliamentary election was rescheduled for July.
“The tax machine doesn’t do its best at a time of electoral uncertainty,” said George Pagoulatos, an economist who was an adviser to former prime minister Lucas Papademos.
Germany has little sympathy.
Living up to the terms of the bailout “is the necessary precondition for further cooperation,” Steffen Seibert, the spokesman for Chancellor Angela Merkel, told reporters last week.
Before the June elections, Samaras pledged to renegotiate the terms of the bailout with the international group of creditors that now keeps permanent watch over Greece’s finances. But European officials have dashed his hopes of significant changes.