Critics say deal pushes economy closer to the brink
Greece braced for new waves of protest on Thursday as its Parliament prepared to vote on its new, European Union-approved bailout package. Parliament is expected to endorse a debt swap with bondholders, a core part of the EUR 130 billion package that would see private debt holders take a substantial loss on the value of their bonds.
The bailout deal, agreed after an all-night negotiating session that finished in the early hours of Tuesday, has been hailed as a successful last-ditch attempt to save the country from bankruptcy as it nears a EUR 14.5 billion repayment deadline it can’t afford. The deal “closes the door on a scenario of an uncontrolled default”, European Commission president Jose Manuel Barroso said on Tuesday.
But many also see the deal as a double-edged measure that will push Greece closer to the brink, as its economy becomes increasingly unable to sustain further austerity. Under the agreement, the deficit must be reduced from 160 per cent to 120.5 per cent of GDP by 2020, Greece’s books will be continuously monitored by eurozone teams and the Constitution will be amended to prioritise debt repayment over the funding of government services. The country has just a week to agree on a further round of spending cuts worth EUR 3.3 billion.
Chief among the sceptics are the members of the “Troika” who negotiated the deal. A confidential report prepared by the International Monetary Fund, whose contribution to the bailout package has yet to be decided, the European Central Bank and the European Union, released by the Financial Times on Tuesday, showed that the austerity measures could plunge the country in a yet deeper recession.
Can’t contain the bleeding
Further bad news for the Greek economy emerged on Tuesday after the deal was struck, with the government posting a revised assessment of its budget deficit for 2012, at 6.7 per cent of GDP from an original target of 5.4 per cent.
Continuing recession in Greece will have an impact on the eurozone economy. Forecasts released on Thursday by the European Commission predict a 0.3 per cent contraction in the region’s economy, a revised assessment from the 0.5 per cent growth the commission forecast in November. Greece, Portugal, Italy, Spain, Belgium, Cyprus, the Netherlands and Slovenia are expected to see their economies contract in 2012, according to the Commission’s latest forecasts.