It’s been eight months in the making but the 130bn Euro second bail out for Greece (remember that?) could be about to go through. Eurozone ministers meet today to approve terms, after the beleaguered Greek parliament reluctantly passed a new austerity package of an additional 3.3bn Euros last week.
Such was the price demanded of Athens in order to unlock the doors of Eurozone largesse and stave off national bankruptcy when a huge debt payment falls due in March. Making those savings will require 150,000 public sector redundancies by 2015, a 22% cut in the minimum wage, and a 12% cut in pensions of over 1,300 Euros a month, amounting to one of the most draconian spending reviews ever attempted by a country so deep in the economic doo-doo as Greece currently is.
So with that hurdle negotiated the other Eurozone finance heads are thrashing out terms - a meeting that still promises its fair share of fireworks as the details of private investor losses and member-state contributions are debated. The IMF - from which Greece has already borrowed a record amount in relation to its contribution to the fund - is expected to pony-up no more that 13bn Euros this time around after US pressure to limit its exposure. All the same, French finance minister Francois Baroin reckons its pretty much a done deal’ saying ‘All the elements are in place’. We’ve heard that before, haven’t we?
Beyond all the sound, fury and news management of the seemingly endless road to the rescue deal, there’s the little question of what exactly it’s all in aid of. Rescuing Greece? That seems increasingly unlikely - its economy is already contracting at more than 6% pa, and without growth another bail out will be required in due course, and another and so on. There is very little evidence from economic history that you can cut your way to growth, at least not with a debt pile of 160% of GDP to service.
Which leaves the alternative that it’s all about saving the Euro - this is the goal which the French and Germans in particular almost certainly to have had in mind from day one. All well and good as a political motive but - even assuming that it is possible in the medium or long term - will subsidising Greece to stave off full default actually save the Euro anyway? That is a pretty good question and it’s going to cost a very great deal of both financial and political capital to answer it.
The other big unknown remains the extent of the Greek public’s willingness to play along. It’s by no means clear the bailout route is the best route for Greek national interests, default could hardly be worse than the lost economic generation facing the country as it stands.
Of course, a cynic might suggest that the Greeks have figured that out already and are in it for what they can get: having milked the Euro teat dry and made promises thay cannot keep they will default in due course anyway. A scenario which can’t be far from the minds of those finance ministers as they gather in Brussels today…