ECONOMY

Greek business leader sees Cyprus crisis worsening Greek recession

The Cyprus crisis could tip Greece into an even deeper recession this year, the head of Greece’s biggest business group said on Wednesday, urging a growth-boosting rethink of the country’s bailout programme.

“Greece is directly affected by the Cyprus crisis and based on some estimates this may chop up to one percentage point off GDP (gross domestic product),» Dimitris Daskalopoulos, head of the Hellenic Federation of Enterprises (SEB), told reporters.

Greece’s economy is in its sixth straight year of decline as Athens applies austerity policies to shore up public finances and keep bailout aid flowing, with unemployment above 26 percent, the highest rate in the 17-nation euro zone.

The government projects a 4.5 percent slump this year, bringing total economic contraction in 2008-2013 to almost a quarter – Greece’s deepest recession in peacetime history.

A European Union rescue package to save Cyprus from bankruptcy inflicted heavy losses on bank deposits over 100,000 euros, an unprecedented move that sent jitters across the single currency zone.

Cyprus’s own appeal for international help followed huge losses by its banks on their exposure to Greek debt writedowns required under bailout terms for Athens.

Cyprus absorbs about 9 percent of Greece’s exports. Greece’s central banker said earlier this week the crisis may shrink

Greek economic output by 0.35 percentage points this year.

“With the success of the Greek bailout programme already hanging by a thread, many signs show the recession is deepening with the prospect of recovery in 2014 fading,» Daskalopoulos said.

He said the insistence on austerity by the euro zone’s core to cure the ills of the debt crisis risked breeding euro scepticism and anti-German sentiment among the suffering countries of the single currency bloc.

“The North must give and the South must change, otherwise the historic demons of Europe will find again room to act.”

Daskalopoulos spoke a day before a team of Greece’s international creditors returns to Athens to resume a review of the country’s performance in meeting bailout targets and decide whether it qualifies for payments under its 240-billion euro bailout.

He said the protracted economic downturn and fiscal austerity were testing society’s tolerance limits and called on the government and its international lenders to retool the applied programme with growth measures.

“The bell of reforms must finally ring loudly in Greece,» Daskalopoulos said. «We cannot be fighting tooth and nail against firing a few thousand public sector workers when almost one million people have lost their jobs in the private sector.”

[Reuters]