Accord brings Greece’s sovereignty into question

ATHENS

People are seen under a banner which reads ‘National consensus is a trick, poverty and hunger have no nationality’ during a protest outside the Parliament in Athens. AP photo

Greece has gained extra time to stay in the eurozone with a 130 billion-euro ($172 billion) deal sealed by the 17-nation group’s finance ministers but the document’s humiliating language and harsh obligations could infringe on the country’s sovereignty.

Moreover, the cost for the debt-hit country is too big, economists and business professionals warn. Amid growing public reaction against the austerity measures forced by the eurozone, the Greek government’s ability to implement approved budget cuts is another point of concern.

Greece will have to set up a separate account that ensures priority is given to servicing debts and interest payments above funding government services.

Athens is expected to quickly anchor in its constitution a provision for “ensuring that priority is granted to debt-servicing payments,” which is possibly a blocked account to protect public lenders’ interests.

Permanent monitors from the European Union, the International Monetary Fund and the European Central Bank – frequently described as the troika – will be placed permanently in Athens to ensure there is no backsliding, according to the deal.

“From today Greece is being told how to run its budget and how to spend its funds,” said Gavin Hewitt, the Europe editor of BBC News online. “That is the price for avoiding a return to the drachma.”

The Greek economy narrowed 7 percent in the last quarter of 2011 compared with the same period a year earlier. A return to economic growth could take as much as a decade, experts said.

The austerity measures include a 22 percent cut in the minimum wage. Some 150,000 public sector jobs will also be cut until 2015.

Further protests against the cuts could test politicians’ commitment to cuts in wages, pensions and jobs.

After 13 hours of talks that ended early in the morning yesterday, the eurozone finalized measures to cut Greece’s debt to 120.5 percent of gross domestic product by 2020.

“We sowed the wind, now we reap the whirlwind,” said Vassilis Korkidis, head of the Greek Commerce Confederation. “The new bailout is selling us time and hope at a very high price, while it doggedly continues to impose harsh austerity measures that keep us in a long and deep recession.”

“The news that eurozone governments have signed off [on] a second bail-out package should prevent a disorderly Greek default for now, but will only prolong the Greek recession and leave membership of the eurozone on the edge,” Jennifer McKeown, a senior European economist at London-based Capital Economics, said in a note yesterday to investors.

“We have reached a far-reaching agreement on Greece’s new program and private sector involvement that would lead to a significant debt reduction for Greece ... to secure Greece’s future in the euro area,” Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference.

Some economists said there are still questions over whether Greece can pay off even a reduced debt burden as some mentioned that the debt target might be beyond reach, according to Agence France-Presse.

Greek Prime Minister Lucas Papademos declared himself “very happy” with the deal.

Confidential report
A report by experts from the EU, ECB and IMF said Greece would need extra relief to cut its debts near to the official debt target given the worsening state of its economy. If Athens does not follow through on reforms, its debt could hit 160 percent by 2020, said the report, obtained by Reuters. “Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it,” the confidential report said.