Greek economy on its knees despite bailout deal

Athens, Greece—Greece has a tentative rescue deal, but relief that it is not falling out of the euro is unlikely to last long: its economy has taken a huge hit.

Months of political brinkmanship, uncertainty and bank closures have hurt companies and brought everyday business to a standstill. And new economic measures meant to secure the bailout are forecast to put the country, which emerged last year from six years of economic crisis, through more misery.

“No one is producing. No one is buying. Everyone is scared,” said 59-year-old Dimitris Farmakis, who has a clothmaking firm in Athens.

On top of a slump in demand, Farmakis’ business is hit hard by a government limit on money transfers that makes it impossible to buy supplies from overseas. He has cut down on production and given his staff time off.

“In a few weeks we won’t be producing due to these shortages,” Farmakis said.

Farmakis’ woes are commonplace in an economy that analysts estimate will contract by about 4 percent this year.

That’s a big reverse from just six months ago, when it had emerged from one of the most savage recessions the developed world has seen in modern history. Its public finances were also healing and the country was even considering financing itself once again on international bond markets.

Rip up that script.

Greece fell back into recession in the spring amid growing uncertainty over the country’s future in the euro zone in the wake of the election triumph of the radical left Syriza party in January. As the bailout talks dragged on, concerns became more acute and the recession deepened, evidence suggests. The government’s decision over two weeks ago to shutter all banks, impose limits on cash withdrawals at ATMs for Greeks, and restrict electronic transfers abroad dealt a huge blow to an economy that was already reeling.

Bankruptcies are on the rise: bad loans on banks’ books are expected to surge to account for 40 percent to 45 percent of all loans, from 35 percent in December, according to Moody’s credit rating agency.

Money has been pulled out in droves from the country over the past months of uncertainty. Deposits hit an 11-year low in May and analysts say it will take time for investors to find the courage to plow money back into the country, even if it has a rescue deal.

Meanwhile, the budget savings the government will have to make to get the financial bailout from its European creditors will hurt economic growth. They include, among other things, tax increases that are likely to dent spending.

“Greece has already gone through (a) depression,” said Megan Greene, chief economist at Manulife Asset Management. “This ensures they’ll go through three more years of recession if it’s implemented.”

The Greek government, and many experts, say the bailout deal is needed to avoid the even worse scenario of a complete collapse in Greece’s banks, which would push the country out of the euro. Economists estimate that if Greece falls out of the currency union, its economy could shrink by another 10 percent or 20 percent. AP