European leaders have called for Greece to make further cuts of up to €325m, something that will now be discussed in a conference call rather than the intended face-to-face meeting that would have included the president of the European Central Bank, Mario Draghi, and Olli Rehn, the Commissioner for Economic and Monetary Affairs.
The failure of the Greek government to appease the European finance ministers, a group led by Luxembourg’s Prime Minister Jean-Claude Juncker, comes just a month ahead of a repayment it is due to make on a €14.5bn bond. If the Greek government is unable to make this payment, then it is more than likely to default and raises the possibility of it having to leave the single currency.
Greek politicians have made a great deal of noise about the plans it has in place, and the sacrifices made by its people but official figures show much more is needed. An official estimate shows that year-on-year GDP for Q4 last year shrank by 7%, a 5% contraction on the third quarter.
For the 2011 calendar year, Greece’s GDP fell for the fifth consecutive year, by 6% in total.
"You can’t get away from the fact the eurozone is in a lot of trouble,” commented David Miller, a partner at Cheviot Asset Management.
“Leaders have spent two years not making serious decisions, and it’s brought us to this state of affairs where small incremental changes have failed to really solve the problem. They’ve now demanded certain assurances from the Greek Government which haven’t arrived.
"However, the signs are that the politicians have now found where the problem is, and with the ECB lending to banks for three years at 1% the markets can more reasonably count on there being a solvent, liquid European banking system. This puts the eurozone as a whole in a much stronger place when negotiating with Greece.
"Ultimately Greece is likely to arrive at the decision that it is better to be in the eurozone and face the pain rather than be outside and have no money next month."
