As Europe huffs and puffs, Greece fights to stay afloat

Six months after Greece’s second bailout package was first announced, Greek politicians have agreed on a new spate of austerity cuts required in return for the loans. The 11th-hour negotiations on Thursday followed days of dramatic talks between Greece’s ruling parties, which had appeared to stall over pension cuts. Coming amid widespread unrest over existing austerity measures, the new package of cuts is expected to unlock vital bailout funding from the European Union (EU) and the International Monetary Fund (IMF).

Athens is at risk of defaulting on €14.4 billion of payments to private lenders due on March 20, which it cannot afford to pay. Its increasingly desperate arm wrestling with the so-called “troika” – made up of the EU, the IMF and the European Central Bank (ECB) – has highlighted the plight of Greece’s economy and the growing fear that the eurozone’s debt crisis has deprived elected governments of their powers.

‘Troikan Horse’

Bowing to intense pressure from the troika, Greece’s ruling parties have promised around €3.3 billion in extra spending cuts, replacing the sensitive pension cuts with a decrease in spending on defence and other expenses. The new measures, which include a pledge to axe 150,000 state sector jobs by 2015, are designed to unlock new bailout loans worth €130 billion.

In all likelihood, Greek leaders will have to relinquish control over much of that money – which EU leaders say should be placed in a special account overseen by the EU and aimed at paying back Greece’s creditors. After a decade of overspending and corruption, Greece has run up total debt of around 160% of its gross domestic product, a figure the IMF says must be brought down to 120% by 2020.

Eurozone governments led by Germany and France also want Greece to adopt a law that will give debt repayment priority over any other form of spending. “Exasperated” by Greece’s perceived reluctance to implement promised reforms, EU leaders have vowed not to ease the pressure. For many in Greece, the “Troikan Horse” has simply taken over.

Political theatre

Europe’s deep distrust of the Greek political establishment is shared by many in Greece itself. “In the early days of the crisis, many saw in the economic turmoil a chance to reform the country in depth,” says Nathalie Savaricas, FRANCE 24’s correspondent in Athens. “But that hope has been dashed with the realisation that the country’s political class is either unable or unwilling to change the system.”

According to George Tzogopoulos of the Athens-based think tank Eliamep, Greek politicians only have themselves to blame for their current lack of options. “Our governments have failed to carry out their promises to reform the economy; now they have little choice but to cut spending,” he told FRANCE 24 in a telephone interview.

The initial refusal by two of Greece’s three ruling parties – the conservative New Democracy and the right-wing Laos parties – to accept pension payment cuts has been described as “political theatre” ahead of elections expected in April. “Some Greek dailies hailed the gesture as indication of a willingness to fight for concessions from the Troika, but most people agree pensions are just a drop in the ocean compared to the rest of the measures,” said FRANCE 24’s Savaricas.

Polls suggest the New Democrats and Laos have most to lose from a wholehearted endorsement of the Troika’s plans, both having seen their popularity decline since joining the national unity government last November. As for the Socialists, who ruled throughout the crisis, their support has plummeted from 44% to just 8% over the past two years.

Fatal medicine

Whoever wins the elections – assuming elections are held in the spring – will have little to look forward to. The IMF says Greece’s economy is likely to shrink by more than 3% for a third year running in 2012. Welfare cuts and surging unemployment – now above 20% of the workforce – are pushing more and more households into poverty, while hospitals are running out of basic drugs due to sweeping cuts in health spending. And the new raft of austerity cuts mean worse is to come.

Measures reluctantly accepted by Greece’s ruling parties include a 22% cut in the country’s minimum wage – which at around 750 euros a month is already one of Europe’s lowest –, a move even Greek employers opposed. “The Troika’s recipe is clearly recessionary,” said Savaricas. “It doesn’t take a genius to figure out that if you slash wages and raise taxes you end up with a smaller economy and shrinking revenue”.

According to a poll published Wednesday in Greek daily Kathimerini, 91% of Greeks believe the country is going in the “wrong direction”. As the Archbishop of Athens, Hieronymos, put it last week in a letter to the prime minister, “the medicine we are taking has turned out to be fatal for our nation”.