By Mehreen Khan 13 May 2015
Economy shrinks by 0.2pc in the first quarter of the year, as Leftist government maintains it wants an "honourable compromise" with creditors
Second consecutive quarter of contraction puts Greece back into recession
Crisis-stricken Greece has fallen back into recession, after the economy contracted by 0.2pc in the first three months of the year.
Figures from the country's official statistics agency showed the debt-laden economy was the third worst performer in the 19-country bloc after Estonia and Lithuania. The figures follow a 0.4pc contraction in the fourth quarter of last year, putting Greece officially back into recession.
Greek Prime Minister Alexis Tsipras has called his third emergency meeting in four days on the back of the news. On Sunday, the Leftist government held a "war cabinet" reaffirming its desire to stick by pledges to raise wages and increase pensions for the poorest.
The European Commission was forced to slash its yearly growth forecast for Greece to just 0.5pc this year, from an earlier estimate of 2.5pc. This projection is still based the country managing to secure a bail-out deal with its creditors and remain in the Eurozone.
Greece briefly hit the heights as the Eurozone's fastest-growing economy in the third quarter of 2014. But falling business confidence, eye-watering unemployment and persistent deflation has seen growth prospects take a tumble since snap elections were called in December.
Flagging growth will also throw in doubt Greece's Troika-imposed budget targets. The country's creditors are demanding a budget surplus of 1.2pc to 1.5pc of GDP this year in return for the vital bail-out cash the Leftist government needs to stay afloat.
Despite contracting less the analysts had forecast, Greece's Leftist government still faces an "impossible trinity" said Daniele Antonucci at Morgan Stanley.
"Syriza seems to want to stay in the euro, be in power and undo the bailout programme, for example when it comes to labour and pension markets. That’s an impossible trinity, so one of these three has to give."
Despite talk that the government is willing to hold a referendum to decide its Eurozone fate, Syriza ministers said the country was still seeking an "honourable compromise" with its creditor powers.
Germany's finance minister touted the possibility of a popular vote as a "helpful" way for Greeks to decideif they wish to remain in the Eurozone and abide by creditor conditions for financial aid.
Wolfgang Schaeuble has raised the prospect of a Greek vote on the euro
"Greece can't be thrown out of the euro. The only thing remaining in the end would be if Greece said itself that it wants to leave the euro voluntarily," said Germany's deputy finance minister Thomas Steffen.
Governor of the Bank of England Mark Carney said European policymakers were making "heroic efforts" to prevent Greece leaving the Eurozone. Mr Carney said the European Central Bank "alongside the IMF are working creatively, innovatively and relentlessly to try and avoid [Grexit] in a way that is sustainable".
"I don't think there is any complacency" said Mr Carney, who added that an exit would only have a "modest" impact on the UK economy.
Figures from the rest of the Eurozone showed France was the comeback country of the bloc this year. French GDP growth was double analyst expectations coming in at 0.6pc in the first three months of the year.
As a whole, the single currency zone grew by 0.4pc, meeting expectations, and hitting a two-year high on the back of falling oil prices and monetary stimulus from the European Central Bank.
Bailed out Cyprus was the best performing economy, with growth reaching 1.6pc. This was followed by Spain, which has been reaping the benefits of a number of economic reforms, and grew by 0.9pc in the quarter.