Global economy fears as Greece faces bailout
Updated on 30 April 2010
If a new round of austerity measures in Greece fails, reports John Sparks, the country's financial crisis could spread and leave a chunk of the world economy in ruins.
"Today the top priority is the survival of the nation" - the words of Greek Prime Minister George Papandreou, warning parliament of the need for a new round of austerity measures as part of the price for an international bailout.
Agreement could be reached by tomorrow with the International Monetary Fund on a package worth up to 120bn euros.
But with protesters already taking to the streets, there are serious doubts as to whether the Greek government can force through more spending cuts.
Greece - under new management
Over the last couple of weeks a large delegation from the IMF - the global lender of last resort - has been dictating terms in Athens, writes Channel 4 News business reporter John Sparks.
On the table at the country's finance ministry is a colossal loan of 120bn euros - enough to keep Greece going for three years. But the price for that loan is very high indeed.
Speaking to the Greek parliament and preparing the country for difficult times ahead, Mr Papandreou said: "Today, right now, the number one priority is the survival on the nation."
He continued: "The measures we must take are needed for the protection of our country. For our survival, for our future, so we can stand firmly on our feet."
But many Greeks are unhappy that Mr Papandreou's government has already introduced a package spending cuts and tax rises. But the painful truth is that they are not enough.
The money markets are not lending to Greece because it is considered too big a risk. That is why the IMF, along with other eurozone nations, have organised a bailout. But only if the government pushes through another round of austerity measures.
The package, to be unveiled this weekend, will include –
- the second rise in VAT this year, to 23 per cent
- public sector salaries cut by up to 20 per cent
- all public sector contract workers to lose their jobs
- a severe cut in pensions
- retirement age raised to 67 (average Greek retirement age is 53)
But if the country goes bust, the financial crisis could spread quickly.
Graham Turner, of GFC Economics, told Channel 4 News: "There is a conflict between, effectively, Greek workers and European banks.
"Many European banks hold Greek government debt. And if there is a default, then the cost of resolving this crisis passes from the Greek workers to the European banks, effectively."
We are all interconnected. That is why bankers and politicians worldwide - even President Obama - are worried.
The concern is that the Greek budget deficit could leave a big chunk of the global economy in ruins.
