GREECE enters one of the most critical weeks in its history today as Eurozone finance ministers meet to decide the release of the fifth tranche of loans to Greece as well as bash out the terms for a new bailout. It is essential that the finance ministers agree on a plan to put before the EU summit on Thursday and Friday. If the plan is not deemed workable analysts predict that “the bond and financial markets will be merciless”.
Also today the discussions on a vote of confidence will begin in Greek parliament and are expected to be completed by Tuesday. Prime Minister George Papandreou finalised a cabinet reshuffle on Friday, in the hope of ensuring against any defections from his PASOK party which has the parliamentary majority to approve the new package of austerity measures. Approval of these measures is a condition for Greece receiving the fifth tranche of the bailout money – €12 billion – in July. Without this amount there will be a default that will wreak havoc across Europe.
The cabinet reshuffle, aimed at bringing together all the different tendencies within PASOK, should secure the vote of confidence on Tuesday evening. But if Papandreou’s latest move fails and he is forced to call elections, Greece will be unable to make its loan payments in July, a prospect that terrifies its Eurozone partners because of the devastating and far-reaching consequences it would have. This is why the EU is ready to approve a second bailout.
There was some good news on Friday, with Chancellor Merkel and President Sarkozy, reportedly, on the verge of a compromise over how to handle the Greek debt crisis. The former was in favour of the private sector participating in the new bailout with Athens’ lenders, in particular banks, swapping their bonds for new ones with extended maturities. This would supposedly have given time to Greece to reform its economy without writing off any debt obligations. Sarkozy is opposed to this because France’s three big banks are heavily exposed to the Greek economy. Friday’s joint statement said that private involvement in a new, Greek rescue would have to be voluntary; a compromise was on the cards.
Greece does not have a say in what happens. The decisions will be taken by the two big Eurozone players, Germany and France, subject to the consent of the IMF, and will be rubber-stamped by the European Commission and the European Central Bank. The Greek government’s sole responsibility is to secure the approval of Greek parliament for the new austerity measures imposed by the IMF and EU. It is no surprise that some are claiming that Greece has become a protectorate of the EU, having surrendered its sovereignty for the sake of the financial bailout. Once the measures are approved the Papandreou government will have to deal with the public unrest, violence and rioting they would provoke. The PM had promised that there would be no more cuts after the last austerity budget, but he is now obliged to cut public sector jobs and impose more taxes to secure the second bailout.
Unemployment is currently at 16 per cent, the number of jobless having increased by 40 per cent in the last 12 months, while people out of work are set to increase substantially once the latest package of measures is implemented. The big problem is that nobody can safely predict when the Greek economy’s downward slide will be halted. Many economists believe that a default is inevitable and only after a default will the first signs of economic recovery be seen.
For now, the EU is content to delay the default – the second bailout would simply increase Greece’s huge debt which is approaching 160 per cent of GDP – presumably in the hope that European banks will be better-placed to deal with a default one or two years down the road. A delay might also see off the risk of Portugal and Ireland also defaulting, which would be a disastrous development for the Eurozone countries and the future of the euro.
The Greek government is aware that a default is not an option because the consequences of such a decision cannot be confined to within Greece’s boundaries. Persuading Greeks to accept a much lower standard of living for the next few years, for the sake of the Eurozone, will not be so easy.
