Can Greece's economy cope with another lockdown?
Greece's economic problems are growing with fresh forecasts predicting a worsening recession for 2020 amidst talk that the country is headed for another lockdown.
The latest batch of economic news comes from the Bank of Greece, the country's central bank, which noted on Tuesday that economic conditions in the country are further deteriorating. The central bank expects the economy to contract by a rate of 7.5 percent - according to its baseline scenario - versus a previous forecast for a drop of 5.8 percent in annual output.
The figures are slightly better than the official government forecast for a recession of 8 percent, though financial data tends to lose its meaning when recessions are that deep. Optimism remains that a rebound next year will result in growth of 5.6 percent, the central bank says, though everyone agrees that this depends on whether a vaccine is soon found.
Like many countries in Europe, Greece is grappling with a rising number of coronavirus cases and is trying to pull the brake on the pandemic, while somehow keeping its economy afloat.
Speculation has been growing that another lockdown is around the corner, though opinions differ as to whether this will be like the one seen earlier this year or whether it will come with a different set of rules.
Questioned yesterday on whether Greece's economy can withstand a second lockdown, Finance Minister Christos Staikouras replied yes. But it is not clear what he means by being able to withstand.
The Finance Minister said that Greece has managed to keep secure cash reserves of 37.7 billion euros, providing the government with some room to introduce more support measures. The fact is, however, that Greece has little scope to tap these funds and remains with limited fiscal firepower to fight the pandemic.
The cash cushion has been built up as a result of financial assistance provided by the country's official European creditors aimed at helping Greece recover from its ten year crisis. The money has been essentially set aside to cover future debt needs.
Privately, government officials admit that any attempt to draw on this cash is likely to hurt investor confidence in Greece's ability to manage its massive debt and is likely to reverse the low borrowing costs the country has been enjoying recently.
Consequently, it is the money from the European Recovery Fund that will provide some relief to the local economy but mechanisms needed to channel this money into the country neeed time to be introduced, leaving business and households in the country severely exposed to the recession.