There was good news for Athens from Brussels, but from Paris also came a sobering warning. As EU ministers agreed measures to cut Greek debt to 124 per cent of gross domestic product by 2020, the OECD predicted that growth in its economy, which has shrunk by more than a fifth in five years, will not resume before 2015.
It urged Athens to focus on reforms to kick-start its economy rather than cut its deficit at all costs.
Greece adopted another round of cuts earlier this month, aiming to shrink its budget deficit to 3.2 per cent of GDP in 2016 from 9.4 per cent last year. And there is more to come – some €13.5 billion in fiscal trimming. “The agreed consolidation measures should be put in place,” the Paris-based organisation insists. “But if growth proves lower than assumed in the government’s fiscal plans, then the automatic stabilisers should be allowed to operate, even if this means missing the set targets.” The OECD adds that “the most vulnerable in Greek society need to be better protected from cuts in social spending.”
The Brussels deal, the culmination of three fraught meetings of finance ministers, is a welcome affirmation of the union’s political determination to keep Greece on board despite the political difficulties this may bring in some member states, and it will free up next month some €35 billion in EU and IMF aid. That should postpone any threat of immediate uncontrolled default, and, most importantly, the deal also hints at a write-down of more of its unsustainable debt in 2022, well beyond the horizon of Germany’s election next year.
A precedent for Ireland? Perhaps. Evidence at least of a willingness to accept in principle the idea of the long-term debt relief that Ireland needs. As our correspondent Arthur Beesley argues in these pages, a debt deal will probably be required to secure our return to private debt markets next year and “Dublin’s argument must be that this is preferable to bridging loans or a second bailout”. Michael Noonan’s case has been strengthened.