Euros. Photo credit: photoeverywhere.c...
It seems that no one likes Greece’s latest economic reform deal: Greek labor unions called a 48-hour strike in response to what they claimed were too punishing austerity measures, while eurozone ministers declared that the cuts didn’t go far enough and refused to authorize the next bailout.
Greek political leaders announced Thursday night that they’d agreed to an unpopular deal that would see €3.3 billion in budget, wage, jobs and pensions cuts. But eurozone finance ministers and the International Monetary Fund, “exasperated by a string of broken promises by Athens and weeks of disagreement” over the terms of the €130 billion ($172 billion) bailout, according to Reuters, said that there would be no approval of the rescue package unless Greece proved itself first. What they want, according to media outlets, is for the raft of economic reforms to pass the Greek parliament when it meets on Sunday, for political leaders to sign a pledge indicating their support for the measures, and for Greece to find an additional €325 million in spending cuts by next Wednesday. Eurozone ministers are expected to meet that day and Luxembourg Prime Minister Jean-Claude Juncker, current head of the euro group, said that only after those conditions are met with they agree to the bailout.
With no real solution to Greece’s €350 billion debt pile in sight, and a default deadline rapidly approaching, the situation seems hopeless. Markets reacted accordingly: Early trading was down on the news that the eurozone rejected the deal and the euro is stumbling, the FT Advisor reported. Greeks worry that the eurozone and the IMF are pushing the nation into a vicious cycle of decline: Austerity measure inhibit growth, lack of growth keeps Greece in debt. And still others think that the only way out this mess is to cut Greece loose.
Europe is rightfully pushing Greece out. That is the only explanation for the eurozone’s refusal to move ahead on the Greek bailout, claimed Jeremy Warner in The Telegraph: “All pretense at European solidarity has been abandoned, to be replaced by the vengeance of Shylock.” He can understand why, he wrote, as the Greeks “keep promising, but have consistently failed to deliver” and now, given that they will all likely be out on their ears after the next election, their promises mean even less. But pushing Greece out is the only course: “There is now no chance whatsoever of Greece making it in the eurozone. Economically and politically, the country is in meltdown.”
Greece will agree. It has to, argued the BBC’s Mark Lowan. Though a written pledge is a tactic Brussels has tried before and failed, “the price of failure is too high for Greece’s government, which fears bankruptcy and a potential exit from the euro. And Eurozone leaders are unlikely to cut Greece loose either. Germany’s Angela Merkel has said ‘if the Euro fails, Europe fails.’”
Empty promises. Mohamed El-Erian, writing in the Financial Times, noted that Greece’s protracted deliberations in reaching Thursday’s agreement are worrying and there is “an uncomfortably high chance that this agreement will have the same fate as previous ones – unravelling within a few months, and for good reasons.” The three parties involved in the negotiations, the government, and Greece’s private and official creditors, are seeing little reward for their sacrifices in further austerity measures, while Greece’s austerity efforts over the past two years and the bailout have done little but keep the country always on the edge of default. No one among them “owns” the problem of Greece’s long-term financial health. “What Greece needs, of course, is an economic, financial and institutional overhaul. Such a reset is not easy; it is also risky. But until it happens, repeated rounds of negotiations will be the rule – as will derailed agreements and finger-pointing.”
Snapping up the drachma? There is a very real danger that Greece will be forced to leave the euro and if that’s the case, argued the Financial Times’s James Mackintosh, foreign investors ought to “snap up” the devalued drachma. Watch the video here.
The EU needs a contingency plan. Ahead of the Greek deal, Reuters columnist Hugo Dixon warned that the EU is in desperate need of a contingency plan, in the increasingly likely event of a Greek blow up and a resulting panic in the European banking industry. If Greece defaults, the results will be catastrophic for the rest of the EU: Runs on the banks and “The European Central Bank would, again, have to ride to the rescue by flooding the system with liquidity.” But that might not be enough; the ECB and the EU need to get creative – and fast.
More on the eurozone debacle
- Greek debt talks continue to drag on
- Eurozone debt crisis continues to deepen
- Is the UK economy doomed?
