UPDATED: Europe Scrambles To Bail Out Greece
The European Union will try to save Greece from default with a 65 billion euro bailout. The International Monetary Fund recently warned that it would withhold its next series of loans to Greece unless the EU agreed to fund the country’s debt for the remainder of the year.
Earlier in May, the IMF admonished that Greece’s economic recovery would derail without significant reforms. Austerity measures sparked massive strikes by Greek workers. The recent IMF demands provoked another wave of protests, in which tens of thousands reportedly packed central Athens.
The Greek government is stepping up its efforts to enact another austerity package, The Wall Street Journal reported.
As Greek politicians are painfully aware, the more financially stable countries in the EU are unhappy about having to funnel money to a nation they see as having been fiscally irresponsible. From Reuters:
EU officials said a new 65 billion euro package could involve a mixture of collateralised loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece's privatization programme. "It would require collateral for new loans and EU technical assistance -- EU involvement in the privatization process," one senior EU official said, speaking on condition of anonymity.
Extra funding for Greece faces fierce political resistance from fiscal conservatives and nationalists in key north European creditor countries -- Germany, the Netherlands and Finland -- complicating EU governments' task. The Financial Times reported Sunday that the conditions of the bailout could include hits to Greek sovereignty, including the privatization of state assets and “international involvement” in tax collection.
The European political battle over the Greek situation is seen as an example of “brinkmanship” by some.
The Financial Times’ Wolfgang Munchau, however, sees a ray of hope in the political tug-o-war:
There is one element of good news about this stand-off. It ends the quite dangerous illusion of soft options. Until recently the EU has wasted precious time with a discussion of silly schemes such as soft restructuring, or reprofilings. These would have made no difference to Greek debt sustainability but would carry their own inherent risks. The IMF’s hardline position has at least shown the Europeans that they cannot muddle through this crisis with half-hearted schemes. The policy alternatives are becoming increasingly clear. Either the EU/IMF continues to bankroll Greece for as long as it takes, or Greece will be forced into a hard default. There is no middle way. Some form of private sector involvement is likely, even desirable for political reasons. But it will not be material in terms of a reduction in the net present value of Greek debt.
The test of the European system will get even more heated if Spain follows the course set by Greece and Portugal, which has also requested rescue from the IMF.
UPDATE, 5:10 p.m.:
The European Commission, the European Central Bank and the IMF - known as the "troika" - has reportedly approved several conditions of the bailout. It has not, however, nailed down the details of the independent commission that will oversee the sale of Greek assets, Ekathimerini reports. The article adds:
A sticking point [...] could be the formation of the independent agency that will oversee the privatization scheme, which is supposed to raise 50 billion euros by 2015. The troika has insisted that its representatives have a say in the body’s decisions and that they are able to block any moves they disagree with. They have also demanded that no representatives of the government be allowed to participate in the agency and that any decisions it takes should be protected by law so that they cannot later be reversed by a different government.
In a post on Business Insider, Joe Weisenthal questioned the premise that an independent coalition could be trusted to do a better job of overseeing such measures than the Greek government: "It implies that the problem is not the failed economics (austerity, the eurozone, etc.) but just that the Greeks haven't applied it properly, and that if it were just managed better by outsider, all this cutting would work out fine."