Tuesday, February 21, 2012

Greece still faces stormy seas after bailout

It's often said "it ain't over 'til the fat lady sings". But as far as Greece is concerned it's not quite all over and there will be few in the country who feel like singing despite the massive bailout handed out and agreed upon by the EU, IMF & ECB.

Thirteenth hour reprieve

In the early hours of Tuesday morning after more than 13 hours of talks, a second bailout package was finally agreed upon to help the beleaguered nation of Greece [Eurogroup statement PDF].

In order to get the promised bailout of more than €130 billion in funds Greece must comply with a number of conditions. It must reduce debts to 120.5% of GDP and allow a group from the IMF, ECB and EU oversee their accounts [BBC / Sky / CNN / France24 / RT / Xinhua].

This will be highly embarrassing and awkward for a country which has seen riots, rising unemployment, and a change of administration. For outsiders to come and scrutinize Greek finances on what looks to be a permanent basis will be galling for many.

Tough conditions

In order to meet the other conditions of the deal will be even tougher for a country that has been in recession for more than 5 years and is already suffering under a weight of austerity measures.

Many ordinary Greeks may look with despair at another five or more years of recession, austerity and unemployment. While the emphasise has been on growth, Greece, like many other European countries is struggling to lift itself from recession since the global economic downturn of 2008.

Cautious optimism

There was much optimism leading up to the announcement of a deal, but in the first few hours of trading the FTSE, Dax and Cac all saw falls, though all indices did pick up later in the day. The Euro also saw slight gains rising against the dollar and yen.

Even amongst those who had secured the deal there remained some cautious optimism. While there are further meetings proposed in March, members of the EU, ECB and IMF hope that Greece can turn the ship around.

The IMF's head Christine Lagarde spoke of "significant progress" having being made, but some pundits see the deal a sticking plaster. The plaster may be too small. Greece might need many bandages and splints, as well a a long period of recuperation.

The target of reducing Greek debt from 160% to 120.5% by 2020 is seen as over optimistic. It is also widely agreed that such a situation will only be realised if growth returns to Greece, something that may take decades.

Restoring confidence

Secretary General of the OECD Angel Gurria nonetheless welcomed the new deal but said the decision makers had been too slow in coming to an agreement. Speaking on Bloomberg he said, "What happened today is two years late," but added that the deal would "restore confidence". The question hinged on whether Greece would implement policies to bring about change, Gurria continued.

But more needed to be done across the whole group of member states. Gurria said that the eurozone needs a €1 trillion firewall, but that the decision making process was taking "too long" at the "cost of uncertainty".

In order to obtain help from Japan and China, something that has at least been hinted at in recent days, Europe must show they are committed themselves. "The Europeans have to show the world they are willing to do it," Gurria asserted.

While he conceded that it would take many years to re-establish confidence and a stable economy in Europe, Gurria rejected the idea that the eurozone would collapse. "There is no question of break-up," he maintained.

Ongoing austerity

Financiers, banks and investors will feel much of the pain as a result of the deal fleshed out in Brussels. Private holders of Greek debt will take losses of 53.5% on the value of their bonds, with the real loss extending to as much as 70%, especially Greek investors.

But ordinary Greeks will also see losses and a change in their lifestyle. As part of the deal Greece must set up a special account, managed separately from its main budget, that must always contain enough money to service its debts for the coming three months. In order to achieve this further 'hair cuts' or austerity measures are likely.

Government services may be sold off, benefits reduced and public spending will plummet. Taxes have already risen sharply with electricity hikes being much lamented by ordinary citizens.

Erasmia Dimoula, a 25-year-old qualified as a nursery schoolteacher, has been unemployed for two years and now lives at home. Like many young Greeks she is in a state of enforced dependence on her parents, along with her unemployed sister who speaks three languages and has a master's degree in psychology.

"If there wasn't a financial crisis, I would be working now. I'm sure of it," Dimoula tells the Daily Telegraph. Disillusioned, she says she will not vote in the elections expected in April and, like many Greeks of her generation, expresses nothing but contempt for the politicians of all parties who they blame for bringing the country to virtual bankruptcy. "I don't expect anything from any government, from any politician. I can only expect things from myself," she says.


As for who is to blame for the country's troubles there are differing opinions. Some blame the older generations who voted for corrupt governments which handed out jobs according to family or political ties, and avoided taxation. But this generation also helped bring democracy back to the country after toppling the military regime in the early 1970s.

Corruption, overspending, a free and easy social security system and a failure to tackle economic issues are certainly the fault of successive governments. But the Greek population too are also partly to blame for accepting a system that was inherently unsustainable.

Last year the British broadcaster Channel Four aired a programme which highghted just some of the problems that help create a failing economy. Called "Go Greek for a Week" the programme took three British families and placed them in a hypothetical position of being a Greek citizen.

The premise of the programme asserted that the generous tax, pensions and work practices were major causes of Greece's economic crisis. One 54-year-old British hairdresser discovered the generosity of the Greek pensions system, which allows hairdressers, pastry chefs, radio continuity announcers and people in almost 600 other jobs to retire aged 53 at 90% of the final pension because their jobs are defined as hazardous.

A bus driver reaps the rewards of the Greek approach to state-run services, where bus drivers can be paid up to almost double the national average salary and receive extra bonuses for arriving at work early and for checking bus tickets. Meanwhile a British surgeon discovers how paying income tax the Greek way transforms his disposable income. The hour long programme was  entertaining but a nonetheless scathing insight into tax evasion, corruption and mismanagement that have helped to sink the Greek economy [Channel 4OD / YouTube - UK only due to regional licencing restrictions]. The trailer [YouTube] created some consternation amongst Greeks, who were perhaps displeased at their country being mocked.

Riding the storm

Such practices as discussed in the programme will no doubt be targeted by government austerity measures. Whether the cuts are equitable is questionable. Many people in Greece feel that few in the government will suffer, as the population as a whole has to ride the storm.

Lucas Papademos, the Greek economist who was appointed Prime Minister last November, said he was "very happy" at the deal struck, but his people are far from happy. And discontent with the current administration is set to create further turmoil when elections begin in April. Greece is still on stormy seas, and while the ship has been bailed out, the risk of it sinking still remains.

tvnewswatch, London, UK

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