Greece won’t see a cent of the great bail-out
Over the weekend, the Greek parliament voted to accept Europe’s latest demands for spending cuts and tax rises and other reforms and retrenchments. The aim was to make it marginally less implausible that Greece will pay back the hundreds of billions of euros that its neighbours are lending it. The alternative, we were told, was that it would become “ground zero” for a new financial meltdown, with its exit from the euro leading to social chaos within the country and economic chaos outside.
So Greece’s MPs voted it through, 199 to 74 – despite the tens of thousands rioting on the streets of Athens, despite GDP having contracted for three years in a row, despite tax revenues collapsing thanks to austerity-induced depression and overt, systematic tax evasion, despite the main governing party’s popularity falling to 8 per cent in the opinion polls.
Phew! Now Greece will get its second bail-out package of 130 billion euros (the first 110 billion, given in May 2010, having proved insufficient). Now it won’t default or leave the single currency, and everything will go back to normal… won’t it?
Almost certainly not. For a start, despite the vote yesterday, the Greeks probably won’t ever see a single cent of that second bail-out. The idea is that the eurozone will lend money to Greece, which it can use to pay off the banks holding its debt, as part of an agreement to save it from outright bankruptcy in March. But when the members of the single currency originally agreed to this second bail-out last year, Greece was not expected to last this long.
In particular, the Slovakians, Finns, Austrians and Dutch would never have agreed to the deal if they had thought there was any chance of them actually having to pay. It was a political arrangement, spatchcocked together to force the International Monetary Fund to keep forking out for the initial bail-out. The Slovakians failed even to contribute to that first rescue package, so it was never credible that they had any intention of funding a second. The Finns have passed a law banning their government from giving any more money to Greece without collateral. The Austrians have enough trouble coping with the crisis in Hungary – to which their banks are heavily exposed – without sending money elsewhere; being downgraded by the credit ratings agencies hasn’t made them any keener to pay.
It was thus no surprise to observe that, even after the Greeks announced, twice, that they had reached agreement – first externally, with the holders of their debt, and then internally, with the main parties all signing up for further cuts – their European partners produced various last-minute “technical objections”. The next set may concern privatisation. When the second bail-out was originally agreed, part of the deal was that Greece would sell off 50 billion euros of state assets. It isn’t even 10 per cent of the way through; the current proposal is to reduce the programme to just 19 billion euros. Since the 50 billion was supposed to be integral to Greece supporting itself, that implies that Athens hopes to get billions more from the rest of Europe later on. If I were a Finnish or Slovak diplomat, I’d turn up to the next summit with a copy of the original agreement, and ask how the privatisation is going.
The truth is that Europe doesn’t want to pay – so despite all the drama in Athens, the Greeks will probably default outright in March anyway. But even if the cash does come through, that still doesn’t mean the eurozone is saved. For one thing, the Greeks probably have to have an election soon. It was supposed be in February, but now the talk is of April. The governing party, Pasok, was at 42.5 per cent just 18 months ago, but is now at 8 per cent and falling. The three far-Left parties have 42.5 per cent between them. Their victory would almost certainly mean the abandonment of the spending cuts, widespread nationalisation, tax rises, capital flight, and a rapid spiral into exiting the euro. Even the centre-Right New Democracy party, which is part of the governing coalition, says the austerity programme should be renegotiated after the elections. Still, the single currency might get through April somehow. But then it will have to cope with the consequences of the French presidential election. The Socialist candidate, François Hollande, is well ahead in many polls. He has promised to renegotiate December’s fiscal union treaty, which imposes austerity across Europe – a move that would drain what little patience remains in Germany for the whole farrago. By the summer, if not before, we’ll probably face a second Portuguese bail-out (senior figures in Lisbon are already proposing to renegotiate the terms of the first one). Again, the likely result would be Greece being abandoned to its fate.
Beyond this, Athens still has to implement much of the necessary austerity. It is attempting to cut public spending by more than 20 per cent from its peak (versus about 3.5 per cent for the UK, and a historic maximum of around 8 per cent for even the most stringent cuts programmes worldwide). Labour costs relative to Germany’s are down, but still up around 20 per cent over the euro’s lifetime. So the “internal devaluation” required to restore competitiveness – and thus a stable long-term future within the euro – is still around twice as much as has already been achieved, despite a four-year recession. That just isn’t going to happen.
Greece is trying, and it has actually achieved much more than has tended to be recognised. But it is all futile: whatever it does, its fate will be the same in the end.