The Greek patient returns for more help

The Greek begging bowl is being brandished, once again, in European capitals. The leader of the country's coalition government, Antonis Samaras, wants Athens to be given more time to fulfil the conditions of its IMF/EU bailout. Under the agreement's present terms, Athens is required to reduce its budget deficit, which stood at 9.3 per cent last year, to below 3 per cent of GDP by 2014. Mr Samaras wants a two-year extension to hit that target. There is also talk that Greece will request support worth a further €20bn (£16bn) to help the country recover.

Tomorrow Mr Samaras will meet Jean-Claude Juncker, the Luxembourg premier who heads the group of eurozone finance ministers. And then, on Friday, he's on to Berlin, where he will make the case to Europe's ultimate paymaster, Angela Merkel, the German Chancellor.

So far, so familiar. Athens has been pledged around €180bn in financial support from the European Union and the International Monetary Fund since it crashed out of private debt markets in May 2010. Of this, around €73bn has already been distributed. The country also benefited from a €100bn debt forgiveness package agreed in March, where private investors grudgingly agreed to write down the face value of their bonds by 50 per cent. So why, after all this help, does Greece still need to rattle the collection tin across Europe?

There are various reasons. One is the fact that Greece was effectively without a government for two months this year after May's parliamentary elections failed to produce a clear winner, putting back the economic reform timetable. Mr Samaras' broad coalition government was only formed on 20 June. Another reason for the shortfall is that the proceeds from a €50bn privatisation programme have also been disappointing, with just a couple of billion euros raised thus far from disposals of state-owned assets.

But the primary reason is that the Greek economy remains mired in severe depression a full five years after its bubble burst. This slump is pushing up welfare payments, as unemployment has spiralled to 23 per cent. It has also hammered tax revenues as businesses have gone bust and consumers have stopped spending. Both are making it much harder for Greece to reduce its budget deficit. All the cuts and tax hikes that the government has enacted in the past three years, amounting to 8 per cent of GDP, have also sucked demand out of the economy.

And it could get much worse. Last week the government said that its economy was 6.2 per cent smaller in the second quarter of 2012 than the same period in 2011. As the chart shows, the IMF expects the Greek economy to contract by 4.7 per cent this year, to flatline in 2013 and return to growth in 2014. But reports in the Greek press suggest that the Athens government is expecting a contraction of as much as 7 per cent this year, a further 4.5 per cent fall next year and no recovery until 2015. The IMF could, of course, be right, but it is worth noting that the institution has been spectacularly over-optimistic about Greek growth in recent years. In July 2010 it was expecting the economy to grow by 1 per cent this year.

A growth shortfall also puts the Greek national debt on an unsustainable trajectory again. Thanks to the debt forgiveness programme, Greece's public debt burden was projected to fall to 120 per cent of GDP by 2020. But if the Greek depression does not bottom out next year, that target is likely to be missed as well. And Greece's hopes of returning to the private debt markets in 2014 will also probably evaporate too.

Fiscal inspectors from the "Troika", the European Central Bank, the IMF and the European Commission, are set to decide on whether to release a $31.5bn (£20bn) instalment of aid to Greece in early September. Without that cash Greece will again be facing the prospect of a default and probable exit from the euro.

The Troika will be looking for signs that Greece is living up to its side of the bargain on deficit reduction. Mr Samaras is reported to have identified a further €11bn in cuts, equivalent to 5 per cent of GDP, due between 2013 and 2015 to help put Greece back on track. But unconfirmed reports suggest Athens is being asked by the Troika to identify a further €2.5bn in economies. Hence Mr Samaras' request for Greece to be cut a break.

Will Greece get more time to meet its commitments and extra support? It will largely depend on German politics. The German foreign minister, Guido Westerwelle, has suggested he would be open to an extension given the time lost in forming the coalition. "The time that was lost in the Greek election campaigns must be dealt with," he has said. But some German politicians from Ms Merkel's conservative movement have begun to talk increasingly openly about the desirability of cutting Greece loose.

And some analysts say that the chances of Ms Merkel asking her parliament to approve more financial aid for Greece are slim. "The opposition to any further aid for Greece will make Ms Merkel very wary of having another vote on the country in the Bundestag," said Christian Schulz of Berenberg Bank.

Ms Merkel faces a difficult decision. She can keep her coalition intact and see Greece edged closer to the eurozone exit door, or she can try to help Greece and push her government to breaking point. Mr Samaras will need to be very persuasive this week.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence