Greece and EU continue bailout negotiations
By admin February 18, 2015

150130071540-greece-eu-1024x576The Greek government has requested as six month loan extension of a bailout agreement several years old, under which other Eurozone nations agreed to lend Greece badly needed money to help curb its deficits in exchange for reforms to the Greek economy and government. Greece’s current program of loans expires on February 28th, and a new agreement would have to be negotiated by the EU’s other national governments, which means time is running out; the EU has given Greece until this Friday to determine whether it wants to renew the bailout under the same conditions.

This is the latest development in a Greek debt crisis that goes back five years, and the political arguments surrounding it. The crisis began in 2009, when it was discovered that the Greek government had been falsifying the national accounts and that the country’s budget deficit was much higher than officially reported. The following year, in response to this, the International Monetary Fund, European Central Bank, and other Eurozone countries (particularly Germany), nicknamed “the Troika,” agreed to a bailout package of €110 billion for Greece. Which was then was supplemented in 2012 by another bailout package, this one totaling €130 billion.

However, those bailout packages were contingent on significant reforms to Greece’s economy and political system. In exchange, the Greek government had to promise to reduce government spending, reform the health care and pension systems, crack down on tax evaders, and increase taxes. Many of these reforms have proved deeply unpopular with Greek voters in the years since, causing significant pushback from populist movements from both the left and the right, particularly given the perceived consequences of these reforms – the Greek economy has shrunk by roughly a quarter since 2008, and unemployment was last measured at 25% in the fall of 2014. Last month, this anger led to the election of the Syriza (“Coalition of the Radical Left”) party in Greece’s legislative elections. Among other things, the Syriza program that was unveiled last fall called for a renegotiation of the amount of debt Greece owed, and the rebuilding and extending of the welfare state, both of which clash with previous agreements with the “Troika.”

This has led to the current stalemate in negotiations. The other members of the Eurozone, with Germany in the lead, want Greece to accept an extension of the previous loans under the same conditions and agreements negotiated in the 2010 and 2012 loan agreements. The new Greek government, on the other hand, is requesting a temporary, bridging loan for six months, during which time a new agreement would be negotiated, which would eliminate the spending cuts and austerity measures agreed to in 2010.

So far, no compromise has been reached. Germany’s finance minister, Wolfgang Schaeuble, has said that the question is “if Greece wants a program at all or not,” and asserted that neither he nor any of his colleagues understood what Greece wanted and that “whether Greece itself knows is not clear either,” and warned that “on February 28th at midnight, it’s all over.” In turn, Greece’s Prime Minister, Alexis Tsipras, has said that he will not succumb to blackmail, and that “we are not in a hurry and we will not compromise.” A resolution to this is made even more difficult by public opinion at home; the Greek government was explicitly elected on a promise to reduce the austerity programs Germany insists on, but many German voters are equally angered by what they see as a demand that they pay for Greece’s mistakes. The German government may also be afraid that a deal with Greece would encourage anti-austerity movements in other financially shaky Eurozone economies, like Portugal, Spain or Cyprus. Despite this, negotiations continue, with Tsipras expressing “cautious optimism” and two more EU leaders, Italian Prime Minister Matteo Renzi and Cypriot President Nicos Anastasiades reportedly attempting to broker a compromise .

Currently, the future of Greece’s economy is uncertain. The Syriza government is a clear attempt to chart a new course for the country, possibly at the risk of alienating longstanding partners; whether or not it succeeds and what this new course might look like will be shaped by the outcome of these negotiations.

Further reading:

Thanks for sharing !

Comments are disabled.