Greek Finance Minister Yianis Varoufakis speaks during an Economist conference in Athens yesterday. Varoufakis called for the European Central Bank to agree for Athens to delay payment on some €27bn ($30bn) in Greek bonds that it will otherwise be unable to repay.


AFP/London


A failure by Greece to reach an agreement with creditors could plunge the country into another “major recession,” undermining the improving outlook in Central Europe, the European Bank for Reconstruction and Development (EBRD) said yesterday.
The chances of the Greek government and its main creditors resolving the impasse remain unclear, the London-based institution said in its latest economic forecast issued a day after official figures showed Greece had slipped back into recession following months of positive growth.
The Greek economy, which grew by 0.8% in 2014, would show zero growth this year and expand by two% in 2016, provided Athens reaches an agreement with its eurozone partners and the International Monetary Fund to unlock the bailout loan’s last tranche of €7.2bn ($8.2bn), the EBRD said.
But “these forecasts would be rendered completely invalid in a negative scenario”, the EBRD said in its report published during its annual meeting held in the Georgian capital Tbilisi.
According to the report, “Greece would likely fall back into a major recession, the size and duration of which are difficult to quantify now,” if it misses sovereign debt payments and introduces capital controls, limits on deposit withdrawals, and virtual currency to pay domestic obligations.
Over the last six years, Greece lost a quarter of its gross domestic product in a recession rooted in the 2008 global financial crisis.
The country’s economy started to recover last year and registered three consecutive quarters of positive growth before contracting by 0.4% in the last quarter of 2014 and 0.2% in the first quarter of 2015.
“Business confidence has been badly hit by widespread fears that Greece may default on its external debt obligations and perhaps, in an extreme scenario, even exit the eurozone,” the EBRD said in the first ever forecast provided for Greece, where in March the bank said it would start funding much-needed investment.
But four months of deadlock between Greece’s radical left Syriza-led government and its EU-IMF creditors over the reforms needed to release the remaining bailout funds, has generated concerns Athens is running critically short of cash and may soon end up defaulting, setting off a messy exit from the euro.
Greece’s finance minister Yanis Varoufakis yesterday called for the European Central Bank to agree for Athens to delay payment on some €27bn ($30bn) in Greek bonds that it will otherwise be unable to repay.
“It’s quite simple, these bonds must be pushed into the future, this is clear also to the ECB,” Varoufakis told a conference.
The Greek bonds were part of a batch purchased by the ECB in 2010 and 2011, he said.
Varoufakis has warned that the country risks running out of cash within two weeks if no deal is reached with its creditors to unlock the last tranche of aid funds.
Athens in July and August is already scheduled to repay over €6.0bn to the ECB from the same bonds, Varoufakis added.
The EBRD also warned that any volatility related to the Greek crisis would dampen positive trends in Central Europe and the Baltics (CEB), where growth forecasts were revised up thanks to the stimulus from the eurozone monetary easing and the positive impact of falling oil prices.
The EBRD said it sees economies in the CEB region expanding this year by 2.9% — against previously predicted 2.6-percent growth — and by 3% in 2016.
It said the region’s best performers would be Poland, Hungary, Slovenia and Slovakia whose economies are expected to grow by 3.4%, 2.6%, 2.0%, and 2.8%, respectively.
The EBRD was set up in 1991 to help fund the free-market transformation of the former communist states of eastern Europe.
Since then it has broadened its remit to all of Europe and neighbouring areas, focusing on the private sector to deliver economic, social and political change.