The Greek conundrum

 
Lightning illuminates the ancient Parthenon temple on top of the Acropolis hill in Athens on 14 October 2012

They are closing in on agreement. That is the word from Athens.

After three months of talking between the Greek government and inspectors from the IMF [International Monetary Fund], the EU and the ECB [European Central Bank], they have narrowed the differences over the savings Greece must make in order to qualify for the next tranche of money.

The mood music from the politicians has been positive. The Greeks, we are told in Brussels, are this time serious about reform.

The German chancellor signals her support for Greece by flying to Athens.

German Finance Minister Wolfgang Schaeuble is more explicit. He does not think there will be a Greek default: "We do not see that there is any sense to speculate on Greece leaving the euro, that would be very damaging for Greece and the euro."

Most of the summer talk about Greece leaving the euro has evaporated.

But here is the problem. The Greek government and the troika are still arguing over the figures, although they are close.

The main problem is that once again, the depth of the Greek recession has been underestimated. Tax revenues are down and the shrinking economy undermines projections.

Even so, heads of government this week at a summit in Brussels may well end up discussing a new deal for Greece if the talks in Athens succeed.

Almost certainly Greece will be given two more years to meet its commitments. The IMF backs this and so do most of the eurozone finance ministers.

More time, as Mr Schaeuble pointed out, means more money. Perhaps 20bn euros (£16bn). Perhaps more. That will have to be found. Even so, that is the easier part.

Hard choices

The strategy was for Greece to bring its debt-to-GDP ratio down to 120% by 2020. That clearly will not happen.

The IMF predicts a ratio next year of 182%. By 2020, the IMF believes they might get the figure down to 140%. The European Commission is a touch more optimistic.

What all this means is that the current plan is not sustainable. It is not working.

The Greek economy, with a few exceptions, is in free fall. Sooner rather than later, a cold choice will have to be made.

Will there be a restructuring of debt (with this time national governments and the ECB taking losses), or will there be a third bailout, or will the politicians accept the medicine is not working?

The pervading sense of unreality was broken this week by Swedish Finance Minister Anders Borg who was quoted as saying: "It is most probable they [the Greeks] will leave."

That may or may not be true, but a Greek exit cannot be said to be off the table until the key question has been answered: How will the Greek debt mountain be reduced?

 
Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    +2

    Comment number 158.

    The economy of Greece is experiencing a major downfall. The only salvation that appears to be is the IMF giving a big sum of 31.5 billion Euros for re-capitalization of the banks basically for injecting money into the country to avoid bankruptcy.How long will the people pay for the austerity measures imposed?Where do all these money go and will they be returned?The damage seems to be deepening.

  • rate this
    +6

    Comment number 157.

    Kinnock is Welsh, even I, an ignorant knuckle dragging UKIP supporter know that,the poll was by YouGov, a completely neutral organization.
    If over one hundred thousand people felt strongly enough to sign a petition, there are hundreds of thousands more who agree. 78% of people would like a referendum.

  • rate this
    -2

    Comment number 156.

    Dailymailreader
    "The European arrest warrant, a case where someone stole a 30 pound wheelbarrow, cost the UK over 30,000 pounds"

    I cannot judge this case and I do not know whether it is representative, but it is one more good argument for Britain getting out.

    kane, Your guardian link:

    do You think the situation would be better in the 4 Countries, if they were not part of the EU ?
    I doubt it.

  • rate this
    +7

    Comment number 155.

    152.
    margaret howard
    3 Minutes ago
    "As for Kinnock, Englishmen have never allowed scruples to come between them and making money."
    Everyone knows that Neil Kinnock is Welsh. And you have the nerve to suggest that Lucyj is out of her depth.

  • rate this
    +2

    Comment number 154.

    The European arrest warrant, a case where someone stole a 30 pound wheelbarrow, cost the UK over 30,000 pounds. One of the spurious uses of the EU warrant, which has cost the UK 27,000,000 already.

  • rate this
    0

    Comment number 153.

    D Bumstead
    "Read my 146, I live in an EU country"

    I read it, but what is Your personal disadvantage because of living inside the EU?

  • rate this
    -3

    Comment number 152.

    147 Eu

    "49% wanted out, 21% wanted wanted to stay in with the rest saying they wouldn't vote"

    Not a bad result considering the recent scare stories.

    Was that a poll by the DMail or UKIP, that party for the knuckle dragging section of the country?

    As for Kinnock, Englishmen have never allowed scruples to come between them and making money.

  • rate this
    0

    Comment number 151.

    @149 Read my 146, I live in an EU country.
    @148 One could argue that Belarus and the Ukraine, both being part of the USSR, were also partly responsible for keeping Eastern Europe under Soviet domination. So Poland could demand reparations from them as well.

  • rate this
    0

    Comment number 150.

    144.
    austriacus
    " Britain is mulling repatriation of rights ( e.g. opting out of the European Arrest Warrant )"
    http://www.guardian.co.uk/law/2012/oct/10/human-rights-violations-european-union?newsfeed=true
    If there's one thing the UK takes seriously it's the law and the rights of the accused.
    146.
    D Bumstead
    "It isn't but I live in the EU."
    Not on a Trinidadian passport alone you're not.
    Dutch?

  • rate this
    0

    Comment number 149.

    EUprisoner
    Enjoy Your rest!

    D Bumstead
    "I am not British but West Indian (Trinidadian)"

    Sorry for adressing You with my argument.

    In which way are You affected by the EU?

  • rate this
    0

    Comment number 148.

    131 Bumstead

    @127 Poland, Belarus and the Ukraine have a far, far greater claim"

    And they are realistic enough not to ask Russia for any after they kept them virtual prisoners and poverty stricken for over fifty years and killed thousands of their people or made them disappear in the gulag.

    I think the Russians would say something a bit more forceful then "Nyet"

  • rate this
    +4

    Comment number 147.

    144, recently over 100,000 signatures were delivered to parliament demanding a referendum. In a poll today, 49% wanted out, 21% wanted wanted to stay in with the rest saying they wouldn't vote.
    Only politicians seem to be in the majority wanting to stay in the EU, the Kinnocks coming back millionaires on a tax free income, might be the reason.

  • rate this
    0

    Comment number 146.

    @145 It isn't but I live in the EU.

  • rate this
    0

    Comment number 145.

    137.D Bumstead
    21 Minutes ago
    "we don't need the EU to do that"

    142.D Bumstead
    3 Minutes ago
    "@140 I am not British but West Indian (Trinidadian)."
    Funny, I didn't know that Trinidad was in the EU

  • rate this
    0

    Comment number 144.

    @139
    I think not too much EU help was needed for the LIBOR thing.

    Corruption is everywhere ( Austria e.g.), and it is not the EU who invented it.

    And now, as Britain is mulling repatriation of rights ( e.g. opting out of the European Arrest Warrant ), it will become even easier for criminals to navigate through Europe.

  • rate this
    0

    Comment number 143.

    138.austriacus

    Your President is a dangerous "EU"-fanatic.

    Good night!

  • rate this
    0

    Comment number 142.

    @140 I am not British but West Indian (Trinidadian).

  • rate this
    0

    Comment number 141.

    128.LJ

    " Thing is it was Made in China where they don't allow freedom of speech"

    Do they in the states now? Funny, I thought Occupy were 'moved on'.

  • rate this
    0

    Comment number 140.

    D Bumstead

    If You are British:

    You ignore the concept of solidarity of course.

    But You are going to leave this mess anyway after the referendum.

    Put Cameron under pressure, please! And vote UKIP, please!

    If there is no advantage for Britain within the EU, why stay any longer.
    It is irrational.
    I would flood my government with mails, if I were in Your uncomfortable situation.

  • rate this
    +2

    Comment number 139.

    136.austriacus

    "The EU budget is approx 1 percent of the total GDP, and most of it goes back to the member countries."

    But the way it goes baack encourages corruption especially in countries which already had a culture of corruption. We don't need it at all. It is a monster. Might turn into a full-blown fascist dictatorship every penny spent on it is a waste of money and harmful.

 

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