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Greece must achieve in days what it hasn't achieved in months

ARTICLE | JANUARY 25, 2012 - 12:19PM   /NEW  EUROPE

The two-fold purpose of the postponement by three weeks to 13 February of the conclusion of the agreement on the ‘haircut’ to the Greek debt, as New Europe revealed on 24 January, is now becoming apparent and has taken the form that the European Union wanted.

The EU authorities and the surplus countries of the Eurozone, namely Germany, Holland, Finland, Austria and Luxembourg, which are paying for the Greek bailout, want to exert more pressure on both sides of the negotiation table. However, it appears that there is a third target for this extension of the agreement and bailout. In this way, the release of the extra €130 billion of the EU-ECB-IMF package in favour of Athens is now being bonded with a third prospect, privatisations, but let’s take one thing at a time.

Greek ‘political limbo’
Firstly, the EU-ECB-IMF troika is now telling private lenders to Greece, the banks, that they are expected to accept a low interest rate of around 3.5% on the new bonds they are to receive in exchange for the 50% of the nominal value of those that they already hold (Private Sector Involvement (PSI)), so that the new Greek debt is manageable.

Secondly the EU and the IMF, by bonding together the PSI and the terms for the release of the €130bn package in favour of Athens, is also pressing the three major Greek political parties that support the Papademos government to accept the new Draconian austerity measures needed to arrest the deficits. The second-largest of those parties, the conservative New Democracy, which is expected to win the general election in spring, is following an extravagantly populist line vis-à-vis the country's obligations to creditors.

ND President Antonis Samaras keeps demanding an early general election and insists that there is no need for the government to take severe austerity measures now. This selfish political attitude is being followed not only by ND, but also by numerous prominent Greek politicians, many of whom have adopted a quite catastrophic rhetoric in denouncing efforts to control deficits.

In view of this political paralysis in the country, the EU-ECB-IMF troika, which is the sole source of finance for Greece (and this with taxpayers’ money coming mainly from Germany), is now thinking twice before releasing the €130bn of the second bailout package for Athens. The first, of €110bn agreed on May 2010 has been almost entirely used up without a major impact in reducing deficits. Last year, the gap in the budget was estimated to have reached 10% of GNP, as was the case in 2010. This was a direct result of the unwillingness of the Greek political class to effectively apply the economic measures related to the first package.

Given this, it is now obvious that Brussels, Berlin and Paris want the leaders of the three major Greek political parties to personally sign documents reassuring the troika that the austerity measures related to the second bailout package will be applied, irrespective of the outcome of the election. And this is targeted mainly at Antonis Samaras, who is expected to lead the next government in Athens. Readers may remember that in November Samaras was forced to sign a similar document, which he resisted doing until the very last minute. At stake then was a €7bn loan instalment, part of the first bailout package, in order that the country avoid disorderly bankruptcy on 7 December.

Samaras did sign, but only following pressure from the global financial community and the entire European political establishment. It would appear that he wants to make the same play again, given that Greece will go bankrupt at the beginning of March when a huge bond of €14.4bn matures, if the troika does not release the second bailout package. In view of this, the troika will ask the three leaders of the parties supporting the government and Samaras to sign a new document, promising to apply the related conditions, before the €130bn is released – it seems that the Greek political class does not understand any other language. Incidentally, it should also be noted that Portuguese and Irish political parties not only signed similar documents before the relevant bailout packages were released for their countries, they also did whatever they could to apply the concomitant programmes, something that Greece has been systematically avoiding.

Private lenders