By Trisha Chowdhury
There seems to be no relief for the members of the Eurozone as the Euro crisis reaches its second phase. Greece’s economy is in a tumult and further austerity measures have to be implemented in order for it to claim its second bailout package. However, Greece’s actions in the past have made it subject to intense criticism and whether or not it will receive its second bailout package is yet to be decided.
The likelihood of Greece receiving its second bailout package was uncertain as the other members of the Eurozone were convinced that the nation would not meet the terms of the bailout received in the first bailout package. Despite having adopted several austerity measures, Athens has been accused of overspending huge amounts, especially in the public sector, which has irked many member nations of the Eurozone.
Greece presented its austerity plans to the Eurozone ministers at Brussels. The plan was a four pointed one, including 15,000 public-sector job cuts, liberalisation of labour laws, lowering the minimum wage by 20% from 751 euros a month to 600 euros and negotiating a debt write-off with banks. However, the ministers at Brussels have demanded a further 325m Euros in savings for this year, since the Greek coalition could not agree to restructure its pension plan.
The Greek Prime Minister, Lucas Papademos, has agreed to go to any lengths in order to receive the 130bn Euros bailout package. “We cannot allow Greece to go bankrupt. Our priority is to do whatever it takes to approve the new economic programme and proceed with the new loan agreement. It goes without saying that whoever disagrees and does not vote for the new programme cannot remain in the government.”
Greece has been spending more than its capabilities from before it joined the Eurozone. Once the nation adopted the Euro as its currency, public spending and public sector wages soared sky high and the figures were almost double of that in previous years. On the other hand, Greece’s national income was been hit by widespread tax evasion, thus making the situation worse for the nation. As a result of this, once the global economy meltdown occurred, Greek economy was unable to bear the brunt and the situation worsened.
In May 2010, a bailout loan of 110bn Euros was sanctioned and a second instalment was to follow in July 2011, of approximately another 109bn Euros. However, this amount didn’t prove to be sufficient and in October 2011, the nations in the Eurozone persuaded banks to consider the situation and allow a 50% “haircut” on their Greek holdings despite having increased the second instalment of the bailout package to 130bn Euro. But all the efforts have seemed to have gone in vain as the economic situation in Greece has depreciated all the more and banks would have to consent to an even bigger debt write-off than what had previously been agreed.
The Eurozone ministers at Brussels have expressed their concern of Greece’s capabilities of implementing further austerity measures, including cuts. Their attitude towards spending has come under the line of fire. Government spending equalling to approximately 1.5% of GDP have been asked to implement cuts in pensions and thousands more civil service job cuts. This will add on to the employment figures, which is on an all-time high, escalating at up to 20%. Conditions have also been laid to make the Greek economy more competitive, by cutting down the cost of doing business in the nation. The government had said that it is imperative to make the labour markets more flexible, radically cut down the minimum wage and scrap the paying of the “holiday bonus”, which equals to one or two months’ extra wage. Banks were asked to be re-capitalised whilst safeguarding the managerial independence.
Of all the Eurozone nations, Germany has been particularly critical of Greece, since a large sum of the bailout package is being paid by Germany. The German Chancellor, Angela Merkel, said that Greece must have a chance to cut debt to 120pc of GDP and that there “can’t and won’t be” changes to the Greek plan. German Foreign Minister, Guido Westerwelle, said “You can’t solve a debt crisis by constantly incurring new debts. Growth doesn’t come from debt but from competitiveness. It isn’t enough [for Greece] to adopt reform programmes. Instead, the reforms have to be implemented without delay.” Germany’s big brother attitude regarding the Eurozone, especially so in the case of Greece, has led to a wide level protest in Greece, with many protests being Anti-Germanic in nature.
Greece’s present situation is tumultuous. While on one side it manages to convince the Eurozone nations to grant the second bailout loan, internally it faces widespread riots, union strikes and even ministers resigning from their posts. Any unsuccessful attempt to revive the economy can lead it to bankruptcy. While many consider that Greece should quit the Eurozone and give up the Euro, it is not realized that any course of action would eventually affect the other member nations of the Eurozone, and some non-members like the UK, for whom the Eurozone is the chief trading partner. As the events unfold, all eyes still remain on Greece and only time can tell what the possible consequences may be.