Just as Greece complies at last, Europe pulls the plug

The regime of drastic cuts has tipped the economy into a violent downward spiral. They thought that private industry would muddle through as the state went through the austerity mincer. What the EU-IMF "Troika" did not fully understand is how many firms were really part of the state in disguise.

"The Greek government outsources everything," said one official with close knowledge of the events.

Faced with the guillotine, the state first slashed procurement contracts and then stopped paying its bills altogether. The government is now €7bn (£5.8bn) in arrears to private companies, including €3bn in unpaid VAT refunds for exporters. It is why business has borne the brunt of the fiscal squeeze, suffering 450,000 job losses, and why Greece's unemployment has soared to 21pc.

At the same time the banking system seized up. More than €60bn of deposits were withdrawn. By November, no Greek bank could issue a letter of credit accepted anywhere in the world, with calamitous implications for trade. "Greece became a leper, and is now stuck in Catch-22," said one official.

Hellenic Petroleum was unable to import basic fuel. The reason why Greece's reliance on oil imports from Iran jumped from 15pc to 70pc in a two-week period in November was because Tehran agreed to take on the credit risk.

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