“The manic attempt to keep Greece in the eurozone under conditions that are not sustainable is turning the country into a sort of Kosovo, an EU protectorate that produces little but surplus labour”
By Ambrose Evans-Pritchard
“Nothing as devastating as this has ever been seen in my country before,” said Prof Yanis Varoufakis from Athens University. “The spirit of the Greek people has been broken. They’ve stopped demonstrating and are licking their wounds at home or leaving the country.”
Latest data from the Greek statistics agency showed the overall jobless rate rose to 27.6pc in May, despite a mass exodus of the best-educated young workers to the US, Australia, Britain and Germany.
The figure is likely to rise further as Athens lays off 15,000 public sector workers by the end of next month to comply with European Union-International Monetary Fund (EU-IMF) Troika demands.
“The manic attempt to keep Greece in the eurozone under conditions that are not sustainable is turning the country into a sort of Kosovo, an EU protectorate that produces little but surplus labour,” said Prof Varoufakis.
EU economics chief Olli Rehn said Greek austerity was “difficult but necessary”, and should bear fruit in 2014.
There are at last signs the eurozone is bottoming out after the longest recession since the Second World War, but the European Central Bank on Thursday poured cold water on hopes for full recovery. The bank’s survey of professional forecasters cut its long-range predictions.
The EMU economy will contract by 0.6pc this year, and eke out growth of just 0.9pc in 2014, and 1.5pc and 2015, too little to curb unemployment. The jobless rate will ratchet up to 12.4pc next year.
Fitch Ratings warned that Europe had not gone far enough with plans for a banking union to lower the risk of bank defaults. The new resolution fund (SRM) would scare away funds by concentrating losses on senior bank creditors. Investors were “likely to differentiate more between weak and strong banks” if they could not be sure of state-backing in a crisis.
This will make it harder for weak banks to raise capital, forcing them to deleverage by selling assets, further crimping lending. Roberto Gallo from RBS said small banks may have to slash assets by €2.6 trillion (£2.2 trillion) over the next three to five years to meet new rules.
Greek think tank the IOBE said Greece’s economy would contract by 5pc this year. It accused the troika of paying lip service to reform, relying instead on crude austerity to cut the budget deficit. This has proved self-defeating. The scale of economic contraction has overwhelmed any gains from budget cuts.
Brazilian finance minister Guido Mantega has called for the Greek rescue programme to be “revised and improved”.
The IMF expects public debt to spiral to 176pc this year, and has warned EMU creditor states that they will have to provide substantial debt relief to put the country on a viable path.
The Telegraph, www.telegraph.co.uk
Ambrose Evans-Pritchard is International Business Editor of The Daily Telegraph. He has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels.