Greek deal seen buying time as tragedy unfolds

Greek soldiers Athens, undated.[Shutterstock]

Greek soldiers. Athens, undated. [Shutterstock]

Analysts and politicians concur that the second bailout plan for Greece, agreed yesterday (21 February), has only bought Athens more time, with some already betting on a discreet euro exit for the debt-laden and recession-stricken economy.

The biggest merit of the bailout plan, agreed in the early hours on Tuesday (21 February), was to ensure the rest of the eurozone is insulated from the Greek debt crisis, analysts and politicians agree.

"It's an important result that removes immediate risks of contagion," Italian Prime Minister Mario Monti said.

The complex deal wrought in overnight negotiations buys time to stabilise the 17-nation currency bloc and strengthen its financial firewalls, but it leaves deep doubts about Greece's ability to recover and avoid default in the longer term.

Swedish Finance Minister Anders Borg had a particularly blunt assessment.

"Of course the Greeks remain stuck in their tragedy; this is a new act in a long drama. I don't think we should consider that they are cleared of any problems, but I do think we've reduced the Greek problem to just a Greek problem. It is no longer a threat to the recovery in all of Europe, and it is another step forward."

Towards a quiet euro exit

The deal included a commitment by Athens to continue its austerity-infused cure, with EU officials saying a new wave of salary cuts and privatisations should put the economy back to a growth path as of 2014.

But no one seems to believe this to be a realistic target. A confidential report compiled by the troika – the International Monetary Fund, the European Union and the European Central Bank – warned that Greece's "fiscal outlook has deteriorated" so much that its debt-to-GDP ratio could still be 160% by 2020.

Jennifer McKeown, senior European economist at Capital Economics, said: "The austerity measures [Greece] will have to implement and increased monitoring by the troika amidst public outrage will make things harder and drive it deeper into recession."

"There is a risk of a eurozone exit later this year."

Eurointelligence, an economic commentary and analysis website run by Financial Times associate editor Wolfgang Münchau, said the deal had "paved the way for a quiet Greek exit".

The bailout plan, it said, "was a cynical exercise" in which even those who agreed the deal did not believe in it.

Conservative leader Antonis Samaras, a strong contender to become next prime minister, said the rescue package's debt-reduction targets could only be met with economic growth.

But on the day the deal was struck, Greece revised its deficit forecast for this year up from 5.4% to 6.7%, making this target more difficult to attain.

"Without the rebound and growth of the economy … not even the immediate fiscal targets can be met, nor can the debt become sustainable in the long-term," he said during a visit to Cyprus.

Writing in the Financial Times newspaper, Poland’s former deputy finance minister Gregorz Kolodko was even more pessimistic, saying Greece was heading for catastrophe.

"After the latest meeting of eurozone finance ministers, resulting in the decision to grant Greece a second €130-billion bailout, one might keep saying that things are on the right track."

"But they are not. They are heading for a catastrophe that is already unfolding, albeit in slow motion. Cheating the public and miscalculating and misleading the market is neither a strategy, nor a policy. It is sheer stupidity."

Vassilis Korkidis, head of the Greek Commerce Confederation, said: "We sowed the wind, now we reap the whirlwind… The new bailout is selling us time and hope at a very high price, while it doggedly continues to impose harsh austerity measures that keep us in a long and deep recession."

In Brussels, EU officials defended the agreement, saying more austerity and privatisations will put Greece back to growth within two years.

Eurozone finance ministers agreed a €130 billion rescue plan for Greece on 21 February to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

The bailout will resolve Greece's immediate financing needs but seems unlikely to revive the nation's shattered economy, which has been in recession for five consecutive years.

Under the agreement, Greece will be placed under permanent surveillance by an increased European presence in Athens, and it will have to deposit funds to service its debt in a special "escrow account" to guarantee repayments.

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