Greece secures delay but pain remains

Greek Finance Minister Yannis Stournaras (l) and International Monetary Fund Managing Director Christine Lagarde (12 November 2012) IMF chief Christine Lagarde has called Greece's targets 'ambitious'

The Greek drama, which has preoccupied Europe for almost three years, continues. Another chapter is turned. The problem lies unresolved.

The eurozone's finance ministers have given Greece another two years to make the cuts promised. It is a small reward for the Greek Prime Minister Antonis Samaras for arm-twisting through the Greek parliament another round of tax rises and spending cuts.

What the finance ministers did not do was agree on releasing further funding for Greece. And without the next tranche of 31bn euros ($39.3bn; £24.7bn) in loans, Greece faces bankruptcy. The decision has been postponed until 20 November.

Almost certainly, the deal will be done and Greece will get its money. The reason is political.

The decision to help Greece - come what may - was taken in early August. German Chancellor Angela Merkel put out the word that the possibility of Greece leaving the euro was off the table. She told her political allies to stop talking about it. French President Francois Hollande had told her he would not allow a Greek exit.

Above all, in a German election year, Mrs Merkel wants the Greek crisis to subside.

There are outstanding issues: more time means more money. There was a pretence that it didn't, but it does - between 25bn and 30bn euros. That will have to be addressed and the final deal will have to be passed by several national parliaments.

A second issue is what they call debt sustainability; can Greece meet the target for reducing its debts?

The current target is for the debt-to-GDP ratio to be 120% by 2020. That has now slipped to 2022, although the International Monetary Fund (IMF) insists they should stick to the original date.

Almost no-one believes this target - whatever the date - can be met. The current debt-to-GDP ratio is approaching 190%. The return to growth would have to be not just swift but record-breaking to reach the targets. So, sooner or later, Greece will either need more funding or a re-structuring of its debt.

Measures in austerity package

  • Retirement age up from 65 to 67
  • A further round of pension cuts, of 5-15%
  • Salary cuts, notably for police officers, soldiers, firefighters, professors, judges, justice officials; minimum wage also reduced
  • Holiday benefits cut
  • 35% cut to severance pay
  • Redundancy notice reduced from six to four months

There is further pause for thought: the EU and the IMF have consistently under-estimated the impacts of spending cuts on the real economy.

It has been far greater than envisaged.

And yet, with the latest measures that passed through the Greek parliament this week, more cuts are on the way. The head of the IMF, Christine Lagarde, whilst praising the Greeks for a strong resolve to implement the new programme, called it "very ambitious".

A second concern is political instability. The governing coalition in Greece is fragile. Sooner or later, another election will have to be held and anti-austerity parties may well come out the winner.

Important reforms are being embraced in Greece but the "return to sustainable growth" spoken of by Jean-Claude Juncker, who heads the Eurogroup of finance ministers - is very difficult to imagine. And patience in Greece with austerity is all but exhausted.

So a chapter turns. Not much more.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 21.

    A change in the present political leadership of the EZ will remove the pain. Unfortunately it seems that a cocktail of stupidity and sadism is being served up to divert attention from the fact that those in charge have failed and even made things worse. The question is whether they really care.

  • rate this

    Comment number 20.

    Another breakdown of Comments

    Unresponsive to "Show More"

    Apologies if thoughts offered on @19

  • rate this

    Comment number 19.

    European UNION ?

    Happily married, family completed, then obliged to care for additional children, orphans say

    Do you set table as in Three Bears, sizes of porridge-bowl according to genetic or cultural or financial endowment?

    No, all citizens must share income equality: all must find or make work, but economic geography, not political, will allocate capital, debt & productivity

    A family matter

  • rate this

    Comment number 18.

    More Asset sales by Central and Local governments attracting outside investment and the need to "open up" the Greek Economy. How about the Troika underwriting a 30% discount on all holidays to Greece in 2013??

  • rate this

    Comment number 17.

    #16 val1149

    "How is a constantly increasing debt/GDP ratio going to be solved"

    --stop striking and start working !

    (paying taxes and more honesty --would also help)

    ´PIGS being sent to the slaughter´

    -- and stop complaining !

  • rate this

    Comment number 16.

    I agree that Gavin’s blogs all seem to be very negative, but then again it is difficult to see the positives in this current crisis. I am no economist, but I simply cannot see a way out for Greece. How is a constantly increasing debt/GDP ratio going to be solved unless the EU pays significant parts of the debt off (politically unacceptable) or Greece defaults? This can only end in tears.

  • rate this

    Comment number 15.

    13. quietoaktree
    "Anyone else having Blog problems ?
    -- trouble sending and seeing comments ?"

  • rate this

    Comment number 14.

    @4 Crystal Ball

    The bulk of the EZ population maybe concerned about Greece, and irritated at having to bail them out. But there is none of the hysterical decrying of the Euro. It is widely perceived as positive, as it facilitates growing cross border commerce… Try crossing some of those borders, you'll see that the "it's all going to end in tears" argument isn't very prevalent.

  • rate this

    Comment number 13.

    Anyone else having Blog problems ?

    -- trouble sending and seeing comments ?

  • rate this

    Comment number 12.

    Situation has passed drama, it's a crisis that'll almost definitely turn to tragedy. How many unemployed, how many destitute and impoverished, how many angry people will constitute a tipping point. Will it be insurrection, revolution, guns and dead on the streets of Athens. Will it be the Greek government, no stomach for the fight, that may go beyond the edge. They're better off with the drachma.

  • rate this

    Comment number 11.

    Now more Greek info is appearing-- different sources.

    Friends and relatives--

    16 monthly salaries and privileges --reduced to 14 salaries and even more privileges.

    After 35 years 300,000 Euros + high pension.

    --and are going on strike to disrupt Parliament !

    --Let Greece sink --this has always been ridiculous !

  • rate this

    Comment number 10.

    @6 Mags

    Maybe it's "manifest destiny" but for all of its faults Americans remain optimistic about their society and its survival. Maybe having actually voted for the creation of their super-state they are more invested in its survival? Mark gets to report highs because there are highs, or at least they see this as a bump in the road rather than the bottomless hole the Euro crisis is becoming.

  • Comment number 9.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 8.

    The Germans are still living in denial. How can cuts, redundancies, and higher taxes ever get Greece out of its depression? All the German prescription does is increase the number of Greeks that cannot, and will not pay taxes, and instead rely on the welfare state for their survival.

  • rate this

    Comment number 7.

    @2 Likewise and agreed. Everyone living in the UK is in a dream if they think that they can walk away from the EU and the Euro. The UK economy is tied closely to Europe. If Europe goes bust, so does the UK. Get over it. And the UK is in just as big a mess as some, but no one wants to believe that either. Just wish some politicians would stand up and admit the truth for once.

  • rate this

    Comment number 6.

    Gavin Hewitt's counterpart in America, Mark Mardell, gives us the highs and lows of American life and politics and the country's attempt to get itself out of its awsome debt crises.

    Gavin, in contrast, regales us week after week with just the unremitting lows.

    Maybe he would have been better off staying in the US.

  • rate this

    Comment number 5.

    Now Greeks are using their children as a ´Human Shield´--against justified criticism.

    " It shows that the world believes he is a “lazy, cheating, ungrateful, helpless, corrupt, violent, rude, racist, tax-evading, trouble-making, thieving vandal who lives with his mother,”

  • rate this

    Comment number 4.

    Have you noticed EZ-EU supporters have basically been reduced to using terms like "Isle of Whinge" or "Little Englanders"?
    Don't worry chaps......there has to be some good news soon. Then you will be able to quote it over and over until it falls apart like everything else the EU delivered.
    As for not hearing anyone complaining where you advice is try going out more often.

  • rate this

    Comment number 3.

    How long is the IMF going to keep throwing away good money after bad?

    If a dog were as sick as Greece you would do the kind thing and put it out of its misery.

  • rate this

    Comment number 2.

    @1. kane 

    I live in the Euro Zone, in one of the many stable economies that are in it. Where I'm not hearing any of these hysterical rants to scrap it. So why are the British who are not in it, the most hysterical about it? Oh yes, that's considered normal behaviour on the "Isle of Whinge"!


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