Athens accepts EU aid package amid burning riots
At great cost to the city of Athens, where many neo-classical buildings in its centre were set on fire by hooded youths on the night of 12 February, the parliament passed the new austerity measures for the second soft-loan package of €130 billion, to ensure that the country will not go bankrupt over the next few years.
199 deputies in a house of 300 voted 'Yes' to introducing further austerity measures, this time for the private sector as well, with a 20% reduction in the minimum legal salary and extended deregulation of the labour market. Last week the Eurogroup, which comprises the 17 Eurozone finance ministers, set three conditions for Greece to be accorded a second package of financial support by the EU-ECB-IMF troika.
This support includes a 50% ‘haircut’ to the country's sovereign debt held by banks (Private Sector Involvement (PSI)) along with soft loans worth €130bn to back the Greek treasury and recapitalise the Greek banks. To this end, the Eurogroup set three conditions:
* The Greek parliament must pass the package;
* strong written reassurances from Greek political leaders are required that the deal will be implemented by the government formed after the next general election, whenever it takes place, and;
* the present Papademos government must be specific on how it is going to cover the €325 million gap that still exists in the package.
This announcement was made by Eurogroup chief Jean-Claude Juncker late on 9 February – it must be remembered that the Greek package contains two agreements, one with the country's banks and the other with the EU-ECB-IMF troika, which has been the only source of finance for Greece after June 2010, when the country was cut off from the capital market.
Deputies vote 'Yes'
On 12 February, the Greek parliament fulfilled the most important of the above conditions by approving an additional austerity plan and steep deregulation measures in the labour market, and this in a country that has lost almost 15% of its national product and income over the past four years and is now in a deep recession, and the reduction in the minimum legal salary is predicted to cut another 1.5% from GNP.
On 12 February, the Greek parliament fulfilled the most important of the above conditions by approving an additional austerity plan and steep deregulation measures in the labour market, and this in a country that has lost almost 15% of its national product and income over the past four years and is now in a deep recession, and the reduction in the minimum legal salary is predicted to cut another 1.5% from GNP.
In short, it is highly questionable whether the new austerity package will drive the Greek economy onto a sustainable growth path in the foreseeable future. This is why Greek public opinion is hostile towards the new austerity package – it should be remembered that the first austerity wave in late 2010 was positively accepted by the Greeks but the obvious failure of the-then Papandreou government to make the most of these sacrifices has enraged citizens, many of whom have already seen their incomes reduced by 15% on average.
The political front
In the current political landscape, the new package was backed in parliament on 12 February by the two major political parties, PASOK and New Democracy. The third coalition partner, the LAOS nationalistic party which was until 10 February part of a three-party coalition that backed the Papademos interim government, left the pack and its president George Karatzaferis has said that he will no longer support the aid package – he has seen his party’s percentages reduced in opinion polls to a mere 5% after joining the coalition.
In the current political landscape, the new package was backed in parliament on 12 February by the two major political parties, PASOK and New Democracy. The third coalition partner, the LAOS nationalistic party which was until 10 February part of a three-party coalition that backed the Papademos interim government, left the pack and its president George Karatzaferis has said that he will no longer support the aid package – he has seen his party’s percentages reduced in opinion polls to a mere 5% after joining the coalition.
In short, Karatzaferis has not hesitated to abandon the coalition government despite the fact that he recognised the need to approve the EU-ECB-IMF package (briefly labelled as the Memorandum) to support the Greek bailout, and has repeatedly said that he believe there is no other way Greece could avoid disorderly bankruptcy than to accept this offer.
Concerning the until recently mighty governing socialist party of George Papandreou, PASOK, the group is now in fifth position in polls with but a single digit of affiliation, with its president having already initiated the procedure for PASOK to elect a new leader – two years of austerity measures leading nowhere have proved sufficient to dissolve the party.
As for the centre-right New Democracy party, its president Antionis Samaras was until last November following a completely anti-Memorandum policy line but, in view of Greece’s imminent bankruptcy, in early December 2011 he decided to back an interim government led by Loukas Papademos, an ex-ECB vice governor, to succeed George Papandreou and negotiate a new salvation package with the troika.
This change of policy course by Samaras is obviously detrimental to ND's appeal, with citizens now understandably utterly hostile to the further austerity measures in the new package.
The political system of Greece has changed completely, with three left-wing parties now commanding almost 40% of the votes in opinion polls, in place of 15% some two years ago. In any case, Antonis Samaras is persisting with his request for an early election in April after the country secures the release of the new aid package from the troika of EU-ECB-IMF, with his ND leading in the polls at 30%.
So, Greece has now fulfilled the most difficult of the three terms set by the troika in order for the country to receive the new package – the signed reassurances to the Eurogroup that the country will follow the austerity plan to the letter even after the next election by the leaders who back the Papademos government the easy part.
Samaras resisted signing a similar document last December until the very last minute does not appear to have the same negative attitude as previously. As for further cuts of €325 million in the state budget, this no longer represents a major difficulty, given that the austerity package approved on 12 February in parliament contains tens of billions of euro-cuts in social spending, pensions and wage reductions.
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