A second bailout to Greece is a waste of time and effort

2011-06-23

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Greek PM Papandreou (left) faces pressure from EU collegues

Today June 23, 2011 the EU summit is taking place in Brussels where European leaders are expected to reaffirm their commitment to the single European currency, which implies that a new bailout package to Greece will be agreed upon.

The amount of this package could be as high as the previous one, 110bn euros, but this time the structure will be much more complicated as it will include the involvement of the private sector in dealing with the Greek debt, which is of course an issue that can cause a lot of confusion, controversy and other problems since each party has a different agenda and the private sector is unlikely to participate if no substantial guarantees are offered by the Greek state and if no incentives are given to them.

Hence from the outset and with the information that is currently available one can only expect the second bailout package to Greece to be very complicated and its effectiveness very doubtful.

The tricky part in this issue is that even if all parties agree on the structure and the final form of the new bailout package there still needs to be an agreement in Greece over the medium-term programme that has so far received the approvement of the cabinet in Greece but the whole situation in the country, with thousands of people protesting on the streets over the new austerity measures, with all parties of the opposition being against the medium-term programme and with debuties of the governing party itself (PASOK) being sceptical about the programme, there could well be a failure of the government to implement it.

Failing to do so will automatically cancel any new assisance to Greece as the troika (EU, ECB, IMF) has set this as a prerequisite of any new help. Furthermore if the medium-term programme does not pass from the parliament on the 28th of June, then the current government will be forced to resign, thus leading to national elections that can slow down the entire process and can in fact jeopardize the next tranche of loans of the first bailout package which is set for mid-July.

It seems to me that the discussions that are underway at the EU summit are not going to solve the problem anyhow, since they are not oriented towards addressing the real nature of the issue, which is the inability of Greece to cope with its responsibilities towards its creditors.

The greek economy and the Greek society cannot endure a new round of stricter austerity measures since the real economy in Greece is already crippled and could easily completely collapse, while society is already in unrest and things can only go for the worse should today’s peaceful demonstrations turn violent.

It would have been more prudent for European leaders to sit on the same table to discuss ways of restructuring the Greek debt with the lowest possible costs, that would however ensure the viability of the Euro and the european safety mechanisms. After all many economists are already of the view that Greece cannot avoid default, so a restructuring of the debt now would be much better for the EU than a complete default that will cause unpredictable problems and might even threaten the very existence of the euro and can put in trouble the integrity of the entire EU architecture.