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Greece forced to swallow EU's bitter pills

Politics / Global Debt Crisis Sep 22, 2011 - 12:55 PM GMT

By: Pravda

Politics

There are two noticeable trends in the story of public debt of Greece. The first is the intent of the EU to save the financial system of the country with loans - the only aid of the capitalist economy. The program is accompanied by unprecedented pressure on the Greek government that is forced to take a series of commitments on economic reform.


Another trend is an attempt by the Greek authorities to somehow improve the situation with the budget at the expense of trivial savings, regardless of the growth of the country's social unrest. The long-term effects of the "belt-tightening policy" may be severe.

Technical default is expected in the event that the next (sixth) installment of the international loan is not received. The total amount of promised aid from the EU amounts to 110 billion euros. The allocation of the last tranche is surrounded by a number of tough economic conditions. It is the imposition of additional taxes and charges to the budget and introduction of austerity measures.

The Greek government has repeatedly taken various painful steps aimed at creating budget savings. In particular, it was decided to lay off another 20,000 civil servants. Meanwhile, the unemployment rate is nearly 17 percent. However, in the near future merger and closure of over 100 public sector organizations is planned.

To increase revenues to the Treasury, a new tax on real estate is introduced that will supplement the budget for another two billion euros. Furthermore, privatization of state assets worth about three billion euros must be carried out.

Read article: Russia next on list after Greece?

Despite some steps taken by the Greek authorities, the IMF delegation demonstrated its dissatisfaction with the fact that the originally agreed upon conditions were not met in full. In early September, the European Commission inspectors, the ECB and the IMF broke off negotiations and left Athens, which caused considerable anxiety of investors who are waiting for the results.

Greece has enough money in the budget at a maximum until mid-October. Later, media reported that Greek Prime Minister Georgios Papandreou refused to go to the US for a round of negotiations with the head of the IMF, Christian Lagarde, citing the seriousness of the debt crisis in the country.

While the position of the Greeks is becoming increasingly worse, Western experts continue to puzzle over possible ways to save the euro without destroying Greece. For example, Germany suggested an idea of ​​returning to the country's national currency - drachma. Some German politicians propose to make Athens abandon the euro to avoid the serious consequences of a possible default of the Greek for the Eurozone. The CSU party chief Horst Seehofer is among those who do not rule out this opportunity.

However, the return to the drachma, in the opinion of the majority of Greek experts, would be an economic suicide. In any case, the bulk of investors have no illusions concerning further development of the situation around the Greek debt. Few believe in the ability of Athens to comply fully with the terms of the loans provided by the EU. The economy as a whole does not give much hope for the resumption of growth.

It should be remembered that the membership of Greece in the EU is not only an economic but also a political issue. EU countries will have to continue to save Greece at the risk of worsening their own debt issues. The logic of any union is pushing to its expansion, while Athens' exit from the Eurozone, by contrast, would be a troubling symptom for the entire EU. Therefore, before expanding of the European Union any further, countries like Germany and France will have to make every effort to prevent a collapse of Greece.

In general, the position of the leading European states on the Greek debt issue remains quite rigid. The terms of the next tranche are still clearly related to the observance of austerity measures. Now the Greeks have to participate in a new round of negotiations, during which the European Commission, ECB and IMF will have to decide on a loan.

The insistence on the adoption of the austerity measures continue to be heard against the background of the deteriorating socio-economic situation in Greece. However, the unrest and strikes that gripped the country, no matter how ambitious, did not seem to frighten the Europeans.

In Greece, few people believe that mass layoffs will have a positive effect on the economic recovery. On the contrary, such measures may lead to the aggravation of the crisis. Yet, the logic of the European financial system does not allow "concessions" to the Greeks who live beyond their means. In these circumstances, the Government of Papandreou has no choice but to save on the needs of the population to get another batch of "bitter medicine" from the EU for the country's budget.

Yuri Sosinsky-Semikhat

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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