keepquestioning

Second bail-out package for Greece

In News on June 13, 2011 at 3:52 pm

Greece is heading for a second bail-out package. In May 2010, Greece received a €110bn euro bail-out by the EU and the IMF. Like in all the situations when one lends and the other borrows, the lender imposes his conditions. And the greater the need of the borrower, the harsher the conditions which the lender can impose. So, as the Greek government refused to borrow from the international markets (at what were admittedly very high interest rates), it borrowed from the IMF and the EU.

The borrowers’ conditions were the usual IMF structural adjustment policies it has so often demanded from African and South American states (minus the devaluation of the currency which cannot take place as Greece is a member of the eurozone).[1] In 2010, the Greek government cut spending and raised taxes amounting to 5-7% of the GDP. The idea was that in 2012 Greece would return to the capital markets, issue new bonds in order to pay off the maturing ones.

However, the scenario of borrowing from the capital markets is no longer a realistic one. There is a real risk of default if further funds are not released soon. In particular, according to a report from EU-IMF-ECB inspectors in Greece (the so-called troika), which was leaked to Reuters, the recession [in Greece] “appears to be somewhat deeper and longer than initially projected”. In 2011, the Greek economy is shrinking by 3.8%, following last year’s reduction in GDP by 4.5%.

In the light of Greece’s undiminished debt, there is a new aid package on the way. According to the leaked document, “the Greek government is one of the European sovereigns with the richest portfolio of assets,” which, however have not provided any revenue but are instead a burden on taxpayers. So, the mantra is privatization, in order to reduce the government deficit. So, the Greek government prepared a new medium-term programme which includes more tax increases and a long list of privatizations.

The list of privatizations includes the Hellenic Organization of Telecommunications (OTE), the National Lottery, the Greek Defence Systems (EAS), the Public Gas Corporation (DEPA), the National Railway, the General Mining & Metallurgical Company (LARKO) , the old Athens airport in the Ellinikon area, Airbus planes, the Agricultural Bank of Greece, (ATE), the Hellenic Post (ELTA), the Public Power Corporation (DEI). The medium-term programme was endorsed by the Greek cabinet on 9 June and it is expected to be placed to popular vote on 15 June, amidst a general strike and protests which have been running in the central square of Athens (Constitution Square) since the 25th May.


[1]  These policies include reductions in public expenditure (austerity), balancing budgets, increasing taxes but reducing corporate taxes, privatization, trade liberalization, devaluation, removing trade barriers to boost exports, making the domestic environment more open to Foreign Direct Investment (FDI) e.g.  by enhancing the rights of foreign investors vis-a-vis national laws, removing price controls and state subsidies. Many of these measures were unnecessary as Greece’s borders were already open as part of it being part of the European Union and the single European market.

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