20 Feb 2012

Greece – the price of a deal

With eurozone finance ministers discussing a second rescue package for indebted Greece, Channel 4 News analyses the terms of the deal.

As eurozone finance ministers discuss a second rescue package for indebted Greece, Channel 4 News analyses the deal (Reuters)

Greece is being bailed out by the European Union (EU), the International Monetary Fund (IMF) and private sector creditors who own Greek government bonds.

To stave off bankruptcy and avoid a possible exit from the euro, Athens is expected to receive 130bn euros from the EU and IMF, with private lenders writing off a further 100bn euros of debt. This will allow it to repay 14.5bn euros to its creditors on 20 March.

In return, Greek Prime Minister Lucas Papademos has agreed to make big savings, firing 150,000 public sector workers, cutting the minimum wage by 22 per cent and reducing pensions.

These austerity cuts, with Greece in recession, 20 per cent unemployment, falling wages and rising taxes, have led to weeks of riots and protests in Greece.

With a default, the risk of social chaos is that much greater. Graham Turner, GFC Economics

But Germany, the strongest economy in the eurozone, is looking for further reassurance to ensure that bailout money is not wasted.

Graham Turner, the founder of GFC Economics in London, told Channel 4 News that even with a deal, “there are so many hurdles that the risks of failure by 20 March are still quite high”.

But Mr Turner said Greece had taken steps to make its economy more competitive: “This is one day’s news and little will change. What matters is rebalancing the economy.

There’s evidence to show that they’ve done this, by boosting exports and cutting back on imports. It’s better for them to do this than default. With a default, the risk of social chaos is that much greater.”

'Very difficult to see a happy ending'
Nick Malkoutzis, deputy editor of the English language edition of the Kathimerini newspaper, wants Greece to remain in the euro, but does believe the country will meet the targets for fiscal and structural reforms set by the EU and IMF.
He told Channel 4 News: "The austerity being imposed on Greece, on top of one of the worst recessions ever seen in Europe, is creating big problems.
"It's very difficult to see a happy ending. If we stick to the programme we have now, within a few months Greece will not be meeting its fiscal targets because the economic situation is so bad."
The EU and IMF would then be left with the decision "of cutting Greece some slack or giving up on it".
Mr Malkoutzis said most Greeks agreed that structural reforms were needed - in improving tax collection, for example. But these improvements would take longer than the EU and IMF envisaged.
"There's a big problem in terms of the timetable. It's impossible for Greece to get it done in the timescale. The public administration is in a very poor state and we're firing people from that public administration."
Mr Malkoutzis criticised the German proposal for Greece's parliamentary elections in April to be postponed. "The idea of dictating when a country can and cannot hold elections is a very dangerous suggestion," he said.
"All you will do is ensure people turn against the measures. The only way this programme has any chance of being implemented is if it has the tacit approval of a large percentage of the Greek population. If you're denigrating the Greeks then you're ensuring that you lose those people. The moderates will not give the programme their approval."

What Germany has proposed has caused offence in Greece. One idea was the appointment of an EU commissioner with the power to veto decisions made by the Greek government.

This is no longer being pursued, however. Austrian Finance Minister Maria Fekter said on Monday that “one cannot usurp the budget sovereignty of parliaments”.

But she made clear that proposals for a special account for the bailout money was being considered. This account would allow the EU and IMF to keep a close eye on how the £130bn was disbursed.

Graeco-German tensions

German Finance Minister Wolfgang Schaeuble has also suggested the postponement of Greek parliamentary elections in April.

The crisis has already claimed one Greek prime minister. George Papandreou was replaced by the unelected technocrat Mr Papademos.

Read Faisal Islam's blog: Dutch downer on europhoria

Germany is worried a new administration in Athens could unpick the deal agreed with Mr Papademos, making a so-called disorderly default on its debts more likely. Hence the suggestion that Greece calls off its elections.

The German government is trying to convince its own electors that any help it gives to Greece will not be frittered away. But Greece, which was occupied by Germany in the Second World War, has reacted angrily.

Mr Schaeuble and Chancellor Angela Merkel have been portrayed as Nazis in newspaper cartoons, while the German tabloid Bild has called for Greece to be ejected from the euro.