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, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    0

    Comment number 41.

    There can be no Economic Union without a political Union. If the United States was not United, no one would care about States like Iowa, but if Iowa is banckrupt, thepolitical Union forces the goverment to bail that state out. The same is not true about Europe. Germans have always had totalitarian tendencies, before political, now economic. But now there is no political Union, so it doesnt work

  • rate this
    0

    Comment number 40.

    One - two or ore years will no resolve the problem.
    No economic plaster or minor or major operation will resolve the crises it my delay the day of the final conclusion bat will no cure the cause.
    The solution is the will of the leaders of the EZ and all members due to become part of the EZ to tell the people we need a fiscal and political UNION now for a better future for our children.

  • rate this
    0

    Comment number 39.

    34.
    kane
    "So, in a round about way, we can blame the UK for Austria's veto threat"

    No.

    To use the veto, if You do not agree, is a legitimate right of every member state.

    To announce a veto before negotiations have started is not high diplomacy. It may give consolation to the voters at home.

  • rate this
    +1

    Comment number 38.

    Gavin.....please get this site sorted out.Still working badly 24 hrs on!

  • rate this
    0

    Comment number 37.

    The German people are in danger of turning their economy into the new Japan......

    Germany can sort the debt mess out & the Govt want to, but the German people need to give them the mandate to do so.....

    ....if Greece leaves the Euro its value will will rise unsustainably for German exports.....

  • rate this
    -3

    Comment number 36.

    This whole EU is such a FRAUD, joke and SHAM I can't understand why PEOPLE don't wake up to all the LIES & CRIMINALITY going on at the IMF & EU Commission in Brussels...They are literally destroying Europe.....OUTRAGEOUS--- Time to fight back!

  • rate this
    +1

    Comment number 35.

    @27 townboy82
    "Greece is at a place where confidence may only be restored by going back to the Drachma. "

    Why would that restore trust towards GR? This country has done more damage to itself during the past 3 years than any currency or speculative attack could have ever done. No substantial reforms have been initiated. A Greek immigrant even told me that our gov. is stupid to give them money.

  • rate this
    0

    Comment number 34.

    31.
    austriacus
    42 Minutes ago
    "Obviously it has become fashionable to threat EU-meetings with veto."
    So, in a round about way, we can blame the UK for Austria's veto threat.

  • rate this
    0

    Comment number 33.

  • rate this
    0

    Comment number 32.

    my 31
    threaten, sorry

  • rate this
    0

    Comment number 31.

    28.
    EUprisoner
    EUp: I note that there have been reports in Austria that Austria might use its veto at the next "EU" summit
    Have you got any comment on that?

    Obviously it has become fashionable to threat EU-meetings with veto.
    Spindelegger argues that if other countries keep the rebate, Austria must keep its rebate too.

    I doubt that this will contribute much to sensible negotiations.

  • rate this
    0

    Comment number 30.

    16.val1149


    I simply cannot see a way out for Greece.

    EUp: Get out of the Euro and possibly the "EU" !

    !
    !

  • rate this
    -1

    Comment number 29.

    Nowhere in the world do we see such blatant intrusion of one country's economy by another as we see with Germany and Greece

    Lest we forget, as the German leader, Merkel makes all decisions based solely on how they can benefit Germany. What she demands from Greece is purely for German benefit.

    That Greece has allowed its sovereignty and a whole generation to be trampled is almost criminal.

  • rate this
    -1

    Comment number 28.

    24.austriacus

    EUp: I note that there have been reports in Austria that Austria might use its veto at the next "EU" summit

    Have you got any comment on that?

  • rate this
    0

    Comment number 27.

    With the so much speculation of a return of the Drachma, Greece is at a place where confidence may only be restored by going back to the Drachma. This of course will involve a default but after the default you will have two types of investor the scavenger and speculative along with the new currency millionaires that bring there money back in droves at a preferable exchange rate.

  • rate this
    0

    Comment number 26.

    Viewing the situation from here in Finland I've come to the conclusion that the Greek problem is mostly due to France since it was France's demand to include Greece in the Eurozone regardless of their lies about their economy. Motivation clearly was to increase France's influence to have more light-money countries in the EZ to oppose Germany and other spend-what-you-earn.countries as Finland.

  • rate this
    0

    Comment number 25.

    Spiegel

    --A second bond ´haircut´ will cost German tax payers 17.5 Billion Euros.

    With German tax payers still paying for 17 million ex- East Germans (1 Trillion Euros so far) and a continually decreasing (West German) living standard over 22 years -- Problems are programmed if Germany remains a European pay-master.

    -- If Greece does not accept being an EU Protectorate -- then let it sink.

  • rate this
    0

    Comment number 24.

    21.
    QueerEZ

    I guess that after 2013's elections in Germany the future of Greece will be decided.

  • rate this
    +1

    Comment number 23.

    The rsolution is writing down a portion of Greek debt as was done for many third world countries with unresolvable debt repayment burdens, or like private banks with uncollectable loans, but the central banks of nations like France which bought so many Greek govt bonds don't want to admit that they made bad investments with enormous amounts of taxpayer money.

  • rate this
    0

    Comment number 22.

    MODS

    WOULD YOU PLEASE REPORT THE PARTIAL BLOG BREAKDOWN.

    --THANKS

 

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