Bill Jamieson: Fuse is lit as battered Greece nears the edge

Published on Sunday 12 February 2012 00:00

IT FEELS – and on the riot-torn streets of Athens increasingly looks – like a fast-fizzing fuse. Today, with the country locked down in a two-day national strike and the government shaken by the resignation of five Cabinet ministers, the Greek parliament holds a critical vote on the latest austerity package to save the country from default.

Without agreement, Greece will not receive a crucial ¤130 billion (£110bn) bail-out in time to meet a ¤14.5bn government bond maturity demand due on 20 March.

Lucas Papademos, the prime minister, warned his Cabinet on Friday that it would be “a catastrophe” if the package was not approved. “Greece’s bankruptcy is not an option we can allow”, he declared.

Greece has the highest debt ratio in the euro bloc, owing more than ¤350bn (£293bn), equivalent to 145 per cent of GDP, far exceeding the Eurozone limit of 60 per cent of GDP.

But these numbers barely begin to describe the state that Greece is now in and the bigger question that looms even if the parliament approves the latest austerity terms: what can today’s parliamentary approval really signify when the government lacks the means to enforce another raft of deeply unpopular measures?

The economy is already in meltdown. State revenues are falling far short of the amount needed to bear down on its debt. The economy shrank by 5.5 per cent last year and unemployment is now reckoned to be at 21 per cent. Poverty and hardship is increasingly evident in the streets. Tens of thousands of young people have no prospect of a job, and pensioners have been unable to afford heating this winter.

The latest austerity package includes a further 15,000 public sector job cuts, a lowering of the minimum wage by 20 per cent, a reduction in pensions, the loss of employee protection in changes to labour laws, and agreement on a debt write-off with bank lenders.

To this grim package Eurozone finance ministers added late on Thursday a further three demands: additional spending cuts of ¤325 million to this year’s budget, full agreement by the Greek parliament and commitments in writing by the country’s political leaders to see through the reform programme even after elections in April.

Without full compliance on this, Greece faces a disorderly default. Yet many fear that ever more severe austerity is destroying the country’s economy and making it impossible for any sustainable recovery to take place. So Draconian are the terms that some now suspect there are elements within the group of EU finance ministers – Germany in particular – who do not believe Greece can possibly comply and that a debt default and exit from the Eurozone would be the preferable solution.

Traumatic though such an exit will certainly be for those holding financial assets in Greece, it may on a medium-term view be preferable to that offered by the enforced austerity route: the Greek economy and its government on a knife edge for years.

Certainly, the mood in Germany, after weeks of nailbiting negotiations between the troika (the European Commission, the European Central Bank and the IMF) and the Greek government is one of deep frustration – and distrust over the willingness, still less the ability, of Athens to comply.

In recent months, to help staunch the crisis, the ECB has bought Greek government bonds, and is now on the hook to the tune of ¤40bn. A writedown of these would further shorten that other fizzing fuse: Germany’s patience with the entire Greek debacle.

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SlyFifer

Sunday, February 12, 2012 at 08:56 AM

Crucifying the ordinary Greek people on the cross of the mypoic vision of a currency ill thought out and introduced will only end up at one place - serious social disorder, nay revolution right across the Med countries. Greece is f****d either way it turns. Default gets the Germans off their back, hopefully, once and for all. Youth unemployment in Spain is now 50% with a massive 5.3 million people on the dole, greater than the whole population of Scotland. The Euro project is and has been wholly unsustainable for a while. Is this all about the pride of Sarkosy and Merkel who believes she has a 'historic duty' to save the Euro whilst consigning millions to a miserable life. You can kick sand in the face of the Scots all day, every day and nothing happens, not so with the Greeks nor the Spanish !.

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Huntly Loon

Sunday, February 12, 2012 at 01:44 AM

Greece should just go bankrupt. All that is happening is they are putting off the inevitable to save Germany's bankers. Get it over with and make a clean start. Piling misery on misery will kill democracy. I see the return of the colonels if there are more public strikes. And the return of the colonels will mean the expulsion of Greece from the EU anyway.

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Irritatingly Intelligent Chauvinist

Sunday, February 12, 2012 at 01:22 AM

You can't pay off a £300bn debt when all you have to sell are olives and yoghurt. Bail out, devalue and watch the return of tourists with their bulging wallets.

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New Unionism

Sunday, February 12, 2012 at 12:49 AM

Greece is what Scotland would become if Labour got back in.

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New Unionism

Sunday, February 12, 2012 at 12:37 AM

Thank God we have Alex Salmond at the helm and the opportunity we have to get control of our own finances. Labour ruined this country, they stole, lied, cheated, betrayed all in the name of their own greed for power. Vote YES

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Sannymac

Sunday, February 12, 2012 at 12:34 AM

I think Greece need to look at Iceland. Per capita there financial problem was worse. The people decided it was the finance people who were at fault and agreed to let them go. All the banks collapsed and the country went bankrupt. That was only a few years ago and now Iceland has a new government that is more responsible to the electorate and the financial position is now OK. I think we should all let the banks and the financial networks crash. The problem is theres not the taxpayers. And while we pick up the tab these people are giving themselves immoral payments.

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