This week is make-or-break for Greece
An agonizing effort to keep itself afloat and avoid default while continuing to negotiate with its creditors may be coming to an end for Greece.
After a painful period of negotiations that included arm twisting, blackmailing, bluffing and lots of frustration on both sides, the negotiating teams of a heavily indebted Greece on the one hand and Greece’s creditors on the other (EU, ECB and IMF) may, at last, come to some kind of compromise. There are rumors that this may happen tomorrow or at least during this week.
It is a common knowledge that since Greece’s creditors decided last year not to release the last 7.2-billion-euro tranche of the 240 billion euro bailout loan that was agreed for Greece, there has been a progressively worsening and serious liquidity problem in the Greek economy. The situation became even worse after the election of the leftist-led Syriza government last January and reached to a near default level last week when the controversial Greek Minister of Finance admitted openly that the country was seriously running out of cash. “We are talking about the next couple of weeks,” he said.
So far this year, Greece had managed to keep paying its debt payments on time using state reserves and not servicing its own domestic debts. Still, eurozone finance leaders and IMF officials push for more drastic austerity reforms, the direct opposition of the leftist-lead Syriza government’s own economic program promised to its supporters. Long and painful negotiations continue, while the EU and IMF negotiating teams keep sending back Greek proposals asking for more amendments, ignoring the fact that after five years of their prescribed austerity, Greece remains a country deep in recession, with a 25 percent registered unemployment rate (which is almost 50 percent among its youth), an economy shrunk by 25 percent since crisis hit the eurozone, a debt of 175 percent of its GDP and a huge loan of 240 billion euros to service. Syriza insists that the recipe was wrong, as it was not supported by an economic recovery program. But this has fallen on the creditors’ deaf ears, while they warn that critical dates are approaching for Greece. It must pay 2.5 billion euros for salaries and pensions by the end of May, repay 6.7 billion euros to the ECB in June and July, while the bailout agreement officially expires on June 30.
The urgency of the above figures is really what makes many expect an urgent solution to avoid a chaotic situation, both domestically and abroad in Europe. The question is the degree of compromise by the Greek government on its elections promises.
On the expectation of such an agreement, it may be useful to look at what was the effect of a much smaller bailout scheme for a country very similar to Greece also hit by the crisis, which signed a four year rescue plan of 78-billion euros in 2010 and came out of it in May of last year. In a special report broadcast by the Euronews channel, Portugal may now look okay on paper; its GDP is expected to grow this year by 1.6. But Portuguese people believe that their country lost a generation as the best and youngest left their homeland. People changed their traditional “going out” life-style to a life of staying-at-home and home-cooking. Soup kitchens for the poor exploded, while income tax increased by 30 percent and stayed, in spite of the expiry of the bailout scheme. Taxes may even stay for decades to come, as Portugal will be monitored until at least 2026 to decrease its debt according to eurozone rules. People are poorer, wages did not increase, and net income decreased. The middle class still pays most of the taxes. Taxes have not decreased and pensions cannot be raised. People stopped buying cars and beef, instead eating chicken or turkey; restaurants are in deep crisis. People take shorter holidays and do not go abroad. Elections are expected in the autumn and people are angry at the politicians for letting them down.
I wonder whether this is scenario that Greece will experience too.