June 24th, 2011
07:26 PM GMT
The Troika trying to manage Greece’s path to normality – the European Union, European Central Bank and the International Monetary Fund – struck an upbeat tone as they broke out from meetings in Brussels Friday, but the reality is one of long lasting pain for the Hellenes with little progress after a five year austerity plan.
The Troika and the Greek Prime Minister George Papandreou are now at least singing from the same hymn sheet and the numbers look like this in the final package: $40 billion in higher taxes and cuts in spending until 2015. Privatisations have been put down to raise $72 billion and at late night Thursday the new Greek finance minister, Evangelos Venizelos, closed a $5 billion budget short fall with a final burst of tax increases and spending cuts. Final tally now: $117 billion.
The President of the European Commission, Jose Manuel Barroso said: “We have once again shown that we find agreement when agreement is needed,” adding, “we did this with an openness and frankness that I have not seen before.”
Some would take an entirely different view. Eighteen months ago the European debt storm was just beginning to take shape and Greece was the first in its path. I remember quite vividly Prime Minister Papandreou’s appearance in Davos at the end of January 2010. I think he was surprised that international bankers were expressing concerns around the small, but now instrumental test case for the euro. His counterparts in Brussels, Frankfurt and Paris should have shared the same level of concerns as the Davos private sector elite.
Back then, interest rates on the Greek 10 year bond were close to five percent. Today they hover at just below 17 percent. What is shaping up to be a Greek tragedy is the level of long term debt that the country and its people will still be left with after all the reforms, taxes and spending cuts are done. Long term debt this year is expected to peak at 157 percent of gross domestic product. Finance officials in Athens say that number will dip to only 140 percent by 2015. That is tragic considering what the Greek people will go through.
Many current and past leaders, especially northern Europeans, express a common refrain, that austerity is the only way out for Greece and that an economy cannot function with public sector workers making three times that of their counterparts in the private sector.
As the saying goes, hindsight is always 20-20. Prime Minister Papandreou’s predecessor Kostas Karamanlis ignored over-runs after the 2004 Olympics and chose not to pursue reforms, when low interests and low inflation would have made that job much easier. As many top flight economists noted, the Greeks lived off German monetary policy for the first decade of the euro and they are paying a heavy price now and probably will continue to do so for a generation.
The German Chancellor Angela Merkel put on a brave face after the meetings concluded saying, “It was a good message that Greece met with the Troika, the European Commission, the ECB and the IMF, and that they agreed on its contributions. We have agreed that there will be a new program for Greece.”
The new program, many believe, will be just as large as the first, some $160 billion. It provided a moment of relief in financial markets that a common ground has been found, but it won’t alleviate what brought Greece to the brink of collapse, it mounting level of debt.
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