Wednesday 20 May 2020 2:32 pm

A second tragedy: Greek economy could shrink by 13 per cent this year

The Greek economy could shrink by 13 per cent this year, the country’s finance minister has said, in an economic disaster that comes despite Greece keeping coronavirus infections under control.

Finance Minister Christos Staikouras said the economy could shrink by between 10 and 13 per cent. But he said the conservative government will do all it can to support growth.

The coronavirus crisis has hit Greece particularly hard. This is largely because of its already dire economic position.

It has spent the five or so years implementing harsh austerity measures to deal with a government debt crisis. It only exited its third bailout programme in 2018.

Greece has been relatively successful in containing coronavirus, however. It has recorded 2,840 cases and 165 deaths since the virus first arrived in late February.

The conservative New Democracy party, which won power from left-wing Syriza in 2019, is mulling cutting sales tax from 24 per cent to 13 per cent for restaurants and cafes.

It hopes this will soften the blow from coronavirus to the tourism-dependent Greek economy.

Bond yields fall after Merkel-Macron plan

Greek bond yields – an indicator of government borrowing costs – have fallen in recent days after Germany and France presented a united recovery plan for the EU economy.

German Chancellor Angela Merkel and French Prime Minister Emmanuel Macron on Monday jointly suggested a €500bn fund in what was seen as a potential breakthrough for the bloc.

Under Merkel and Macron’s radical plan, the European Commission would borrow the money by issuing bonds. The sums would dwarf the Commission’s previous debt issuance.

The money would then be distributed as grants – rather than loans – to the countries that need it most. It would then be paid back through the EU budget over a long time period. Merkel said Berlin would bare roughly 27 per cent of the cost, as it does for the regular EU budget.

However, Merkel and Macron’s plan – announced at a joint video conference yesterday – is already facing some opposition.

Many traditionally fiscally conservative northern European states such as the Netherlands and Austria do not want money to be handed out as grants.