Slow handclap to Greek leaders, who last night finally put their seal of approval to a €3.3bn austerity package that will pave the way to a €130bn bailout from Europe. The measures are by no means gentle: they include €300bn of pension cuts and a 22% reduction to the minimum wage, as well as public sector job losses totalling 150,000. The good news is that markets seemed pleased: the euro opened 0.5% up on the dollar this morning, while equities markets across the eurozone rose slightly. The people of Greece, on the other hand, are less delighted.
German finance minister Wolfgang Schaeuble was also cautious about declaring victory. He insisted that the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund need a written guarantee from Greek ministers that they’re not just paying lip service to its requests. Presumably, they’ve been spooked by Greece’s previous track record: in 2010, it failed to implement the reforms it had promised in return for a €110bn bailout. ‘Greece’s promises are no longer enough for us. They must… first implement part of the programme,’ he told Germany’s Die Welt am Sonntag newspaper.
And this isn’t the end to Greek PM Lucas Papademos’ troubles, either. Almost 40 ministers from the PanHellenic Socialist Movement and the New Democracy party, the two remaining parties that make up the ruling coalition, were either absent or voted against the new rules. Which suggests that opposition to the plans isn’t just consigned to torch-bearing protestors setting banks on fire on the streets of Athens - there’s clearly frustration inside parliament, too. It isn’t surprising: the country’s now in its sixth consecutive year of recession. We’re reasonably confident that it can now be described as a full-blown depression.
The problem here is that politicians on both sides of the argument would rather not be involved. Greece is still in recession, despite the fact that it did (eventually) follow guidance from its European overlords. So Papademos could be forgiven for thinking it would be easier for Greece to default when its loans mature on March 20, leave the euro and then concentrate on coming up with its own recovery plans, away from the prying eyes of Merkozy et al. Although for their parts, European leaders aren’t happy about becoming Greece’s personal lender. With such strict demands, it may be that they're trying to make Greece pull out of the euro of its own accord.
Then again, the risk to the euro if Greece did default is enormous: although in theory the European Financial Stability Facility and the ECB have built up enough of a barrier to prevent a Greek default from sending the euro into a spin, it's difficult to tell how the markets would react. Still: the crisis has been averted for now. We’ll see how long that will last…
- Image credit: Flickr/odysseasgr