Sigh of relief in Athens: the private creditors gave their consent for partial write off of Greek debt. As a result of continued negotiations, it was agreed that 86% of private creditors will participate in the transaction, totalling 172 billion euros. As a result of this debt restructuring, the Investors will lose 74% of their assets. This way Greece has secured a second bailout after the first one in 2010 when the country received 110 billion euros bailout and in return its lenders have attached strict conditions to the loan. Taxes will increase by 3.38bn Euros in 2013, following a 2.32bn euro increase in 2011. At the same time, the Director of the IMF Christine Lagarde argues that the Fund will offer the country a new loan at a rate of 28 billion euro.
Hope that Greece will not crash into the abyss remains only an expectation. Rescue of the country has yet to begin. Yes, this is a good news, but whether this Greek bailout is the end of the crisis? Can the errors of past decades be fixed with a debt remission and several years of savings and reforms?
What politicians do not announce
Greece is a threshold State, where the economic and administrative systems for long years were kept alive with cheap credits. The crisis caused the end of this artificial structure. The German Finance Minister Wolfgang Schäuble does not want to give any guarantee that the rescue of Greece will not cost more money; according to him it is too early for speculation on the subject. The Troika is of the opinion that between 2015 and 2020, after the expiry of the second Pack, Athens will need in addition least 50 billion euros.
Meanwhile, the strict austerity measures push the country deeper into the crisis. In the forth quarter of 2011 the Greek economy has contracted with 7,1%. Budgetary hole in the current year 2012 may be greater than the estimated.
The aim is to cut the Greek government’s debt from 160% of GDP to 120% of GDP by 2020. So, in order to achieve this target, and the Greek debt to be reduced to 120% of GDP, the economy must begin to grow in 2014 at a high pace. Against a background of intensifying recession, this is most probably one too optimistic forecast.
The politicians in Brussels are aware of these possible developments of the situation, but nobody wants to announce the potential consequences. Most probably the troubled Greek economy should need additional financial support for a much longer period of time.
The bald truth
Even more pessimistic is the Swiss Economist Harold Howe. In an interview for Špigel he claims that the forthcoming partial remission of the debt is not enough. “Certainly the country will reach the second true bankruptcy. This may happen in nine months or three years, but then a real, major crisis will emerge.” Professor Howe claims that the problem is not resolved, but merely postponed and the next time the crisis will hit the taxpayers.
At present, Athens has already what to boast. Under the pressure of the crisis the country carried out reforms, which many considered impossible and this must be acknowledged them. At the same time, from the EU point of view, the support is well within the reach of the forces of the Union. As regards the ideas that Greece had to withdraw from the euro zone, this is not a serious alternative: the costs both for Europe and Greece would be much greater than the benefits.
This is the truth about the Greek bailout, but the politicians in Brussels lack the courage to say it clearly to the citizens. The crises did not over with the second bailout. This is just another step to dealing with it.