By Mehreen Khan 30 April 2015
Athens Leftist government risks "unprecedented economic contraction" as it insists it will not cross "red lines"
Economists have warned that a looming "Grexit" would plunge Greece into an "unprecedented contraction"
The Greek government reaffirmed its commitment to carry out key Leftist electoral promises in a stance which threatens to scupper any hope that it can avert the "unprecedented" consequences of an exit from the Eurozone.
With talks over the country's cash-for-reforms programme continuing in Brussels on Thursday, Athens' radical Left government said it was still not willing to blink over spending plans to help the poorest in society.
A Syriza source said the government did "not have a public mandate to bring a deal outside the red lines, and for this reason it will not do so."
The source added Greece would not submit to any agreement which would prolong the "crimes" of austerity against the country.
The comments indicate the sticking points between the two sides remain as entrenched as ever, despite Athens falling close to the abyss of a default to its international creditors.
Lenders are continuing to demand the new government carry out measures to raise VAT for Greek islands, reverse it pledges to raise the minimum wage, and begin a series of privatisations of the country's energy and transport grids.
But with government forced to choose between paying its public sector salaries and pensions, over the Troika, economists have warned that a looming "Grexit" would plunge the economy into an "unprecedented contraction".
"With the country left outside markets, sharp currency devaluation, a credit crunch, and a forced tighter fiscal stance, the Greek economy would suffer a GDP contraction of unprecedented magnitude, even by Greek standards," warned Ruben Segura-Cayuela, Europe economist at Bank of America Merrill Lynch.
Greece has already suffered the sharpest recession in the developed world since the Great Depression, undergoing a near 25pc reduction in output since 2008.
Mr Segura-Cayuela added that a forced exit would inflict a further blow to the stricken debtor, equating Greece's plight to Argentina, which contracted 11pc after it defaulted and abandoned its currency peg with the dollar in 2000.
Fears Greece will break the sanctity of monetary union have become widespread among its lenders. An internal memo from the International Monetary Fund cautioned that a Grexit would lead to rampant inflation in the country.
Despite hope that a refreshed negotiating team was getting closer to securing a release of funds, the man put in charge of Syriza's bail-out talks said his government was only willing to compromise at the margins of its Leftist promises.
"When you have a political plan, you can find solutions and make some compromises," said Euclid Tsakalotos, insisting the government would not cross the "red lines" it has laid down in talks.
The stance echoes that of Greece's energy minister who promised to deliver a bloody nose to the country's creditor powers if they were forced into defaulting on their own people.
"If our 'partners' and the IMF believe that they will blackmail us using the refusal of financing as a weapon, and that they will terrorise the Greek people forever using the 'bogeyman' of default and of a national currency, they are woefully deluded," said Panagiotis Lafazanis.
Greece was granted a small reprieve on Thursday as a looming €200m payment to the IMF was pushed back to May 9, rather than May 1.
An IMF spokesman said the delay was due to the timing of the May Bank holiday early next week. However, the liquidity-starved government will still be scrambling to find the funds for another €760m loan repayment three days later on May 12.
ECB governing council member Benoit Coeure hinted the central bank could ease its grip on the country, lifting a ban on Greek banks increasing their holdings of government debt.
The ECB imposed the limit in a bid to limit banks exposure to the stricken sovereign. But, Mr Coeure is reported to have told Eurozone officials the ECB would reverse the policy should the gulf between the two sides narrow.
Former German foreign minister Joschka Fisher said Greek premier Alexis Tsipras had exhausted the patience of his creditors with his brinkmanship.
"Greece’s government needs to understand that other Eurozone members will not be willing to accommodate its demands if it means delegitimising their own painful reforms," said Mr Fisher. He also cautioned that Europe needed to "abandon their illusions" about containing the after-effects of a Grexit.
"With the clock ticking on default, the Greek authorities need to persuade their partners through action, not promises."