Greeces staves off bankruptcy but troubles lie ahead

Greek riot police line up in front of parliament Strikes and protests will continue in Greece as the economy continues to weaken

In Greece, the basic script is easy: the parliament last night narrowly passed the latest austerity package.

Its passage should release further EU/IMF funding and allow the country to avoid bankruptcy.

The Greek Prime Minister, Antonis Samaras, spoke of putting a smile back on Greek faces. There are many reasons to be cautious, however.

  • Greece is heading for its sixth year of recession
  • the latest measures, which will see salaries and pensions cut, will only weaken the economy further - if the past is a guide
  • the governing coalition is weak and fraying
  • implementation will be difficult. One MP last night called on the people to "disobey the measures". The strikes and protests will continue
  • the country's debt levels are unsustainable. Debt is expected to reach 190% of GDP next year. The target agreed by the IMF - 120% by 2020 - is out of reach
  • Greece will almost certainly need some kind of refinancing and that will test the German taxpayers once more.

Yet again time is being bought. One former Greek minister told me that the country was surviving on Angela Merkel's instinctive caution. She fears - particularly in a German election year - the uncertainty of Greece leaving the euro.

So the country that has seen its economy shrink by 23% remains on life support.

Merkel, Britain and the EU budget

It is worth remembering when dealing with the German chancellor that she plays her cards late. She makes up her mind at the last possible moment.

On the budget, the European Commission still does not have Germany's detailed proposal of how it would apportion spending.

Mrs Merkel will not be drawn on whether she supports a freeze in EU spending, despite having signed a letter supporting such an idea.

Both Berlin and Brussels are pessimistic that a deal on the 2014-2020 budget can be reached in November.

There is a glimmer of a compromise. That is ensuring that the bulk of new spending goes to policies that demonstratively support growth and innovation. Such measures would help the European economy - and might appeal to Britain.

The Germans and others are actively exploring how to guarantee that money is spent efficiently - an idea that will also find favour in London. A glimmer as yet.

The chancellor went out of her way in Brussels on Wednesday to say she wants Britain to stay in the EU. In recent weeks I have heard that message from other senior Germans.

But there is another signal. There is not the will to indulge further British demands. The message has been passed to London that Berlin will not tolerate the UK obstructing moves to closer integration.

One final point. A colleague commented on the real hostility towards the UK in the European Parliament on Wednesday. The Germans still want the UK at the centre of the EU, but Britain's allies are getting fewer.

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  • rate this

    Comment number 12.

    my 10

    sorry, prove

  • rate this

    Comment number 11.

    Greece - Budget and the Euro the solution is the same and is not economic it is Political solution this solution and is very very................... urgent one EU country one Government which will make all the important decision if we want the future generation be able to live with our unique way of life and traditions this is the only way or we say by by to 2500 years of history.

  • rate this

    Comment number 10.

    I guess nobody can proof at this moment whether GREXIT is preferable to following the harsh credit requirements by the troika.
    Thus I feel that the present strategy will be followed, unless something really dramatic changes the game.

  • rate this

    Comment number 9.

    The beeb seem a bit reticent to highlight social unrest in europe when compared with the arab spring.
    Is there a reason for this?

  • rate this

    Comment number 8.

    What is remarkable is that Greece has has not yet descended into complete social breakdown but as each layer of austerity is put down it gets nearer to that point. The dire state of the economy will not be able to support a working democracy and it is only 30+ years ago that the country was run by the military. After a Syriza v Golden dawn civil street war the generals will step in. Then what EZ?

  • rate this

    Comment number 7.

    I think that someone needs to explain the benefits we get from the EU, as it seems like we just pay billions of pounds every year and all we get back is stress.

    Maybe it is time to leave the EU, but remain a trading partner via the EEA and/or EFTA.

    As for Greece, we'll see Athens continue to burn until after the elections in Germany, then who knows? The German people are sick of always paying.

  • rate this

    Comment number 6.

    Unfortunately, here in Greece we have gone past the point of no return. To have refused the Troika's demands in the beginning is one thing, but now it is too late, "they have got us over a barrel". After so many sacrifices already made by the ordinary people re huge wage/pension cuts, tax hikes and near destruction of all social amenities, to now go back to the drachma would be complete disaster

  • rate this

    Comment number 5.

    Perhaps if some of the Eurocrats and politicians spent 3 months living in Greece on a low income wage experiencing the realities of life, as opposed to wining and dining at their sumptuous conferences they might have greater empathy with the Greek people's situation. More importantly, they might realise how ridiculous their policies really are at ground level.

  • rate this

    Comment number 4.

    It was reported a little while ago (Reuters amongst others) that the IMF believed no more money should be sent Greece's way.

    Therefore is this vote of any relevance at all? Will the EU go it alone or have the IMF changed their mind?

    In fact no money will be released until the Greek budget vote this Sunday so it is wrong to state that last nights vote "should release further EU/IMF funding "

  • rate this

    Comment number 3.

    Can anyone explain? I no longer understand the meaning of the word 'union'. But they other words such as 'solidarity', 'prosperity', 'support' seem to have changed their meanings from what I think the original concept of the EU was. The idea of 'more Europe' means something different to what it used to. WEhy has this all happened?

  • rate this

    Comment number 2.

    What again, when will the Greek government have the strength to say no and take control of their country again. They certainly would be in no worse position than they will be accepting this next bail out deal. The only people/countries benefiting from this are the EU and particulary, Germany and France, mind you France cannot admit that they are going down the pan as well.

  • rate this

    Comment number 1.

    Is this really in the interest of the Greek people.
    At what point have they suffered enough, before the EU realize that their federalist dream is not going to work, and Let countries return to their own currencies and devaluate and become competitive again.


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