Greece faces 'take or leave it' offer
Poul Thomsen (C), a senior International Monetary Fund official, arrives at a Greek government building|AFP
The Euro Working Group, a group of technocrats representing the 17 Eurozone countries, that usually prepares the agenda for the 17 ministers of Finance meetings, approved during the night of 6 February, a text about the deep austerity measures Greece needs to take in order to arrest its fiscal deficits and, together with the aid from the PSI and the second soft loan package, to drive the country on a sustainable economic path.
This is the final text approved by the EWG, and Greek political leaders cannot change anything in it, they can just take and sign it and get the new soft loans or leave it and drive their country into certain bankruptcy.
It seems that the rest of the Eurozone feels now that the money zone has created a strong enough firewall against Greek bankruptcy. At this point, it has to be remembered that the EFSF/ESM mechanisms are being endowed with approximately €750 billion plus €200bn through the IMF, plus more money from non-European countries to support the IMF's efforts to back the Eurozone.
In addition, the European Central (ECB) Bank has lent €500bn to 300 Eurozone banks, with the exemption of the Greek banks, to support their liquidity.
All that financial fire-power provides strong evidence that the Eurozone is striving to protect itself against a disorderly Greek bankrupcy. Until now Greek politicians, while negotiating with the EU-ECB-IMF troika on the austerity and restructuring measures to be imposed on their country, in return for more soft loans, have used the argument “don't put us under too much pressure, because if we fail the rest of the Eurozone will also suffer great losses”.
It seems that this argument is no longer valid and the troika is taking no further precautions in 'asking' Greek politicians to agree to its terms. This is now evident after the EWG finalised the text of the Greek deal, without seeking the Greeks' opinion on the final details.
By the same token, European Commission Vice President Neelie Kroes, speaking to a Dutch newspaper on 6 February, said that the Eurozone can now do without Greece. In any case, the three political leaders who support the Papademos government in the Athens parliament had a five-hour long meeting with the prime minister on 5 February, in which they agreed the broad lines of a document that very vaguely describes the dues on the Greek side being as follows:
*Measures should be taken to reduce state expenses by 1.5% of GNP.
*Subsidiary pension funds should secure their long-term viability.
*The competitiveness deficit has to be addressed by reducing the salary and non-salary production costs aiming at increasing employment and economic activity.
*Greek banks should be recapitalised through a combination of measures securing public interest and their operational autonomy.
In addition, the largest parliamentary party PASOK issued an announcement saying that the party “agreeing on everything” was essential for the country to avoid bankruptcy.
However the text adopted yesterday night by the EWG demands more than that. It says that salaries in the private sector should be cut by at least 20%, subsidiary pensions should be deeply reduced by 30%, the state sector should proceed with 15,000 lay-offs over the next few months and 150,000 lay-offs in total until 2015.
After the document is signed by the all the major Greek politicians, undertaking the obligation to apply it to the letter even after the next election, whenever one is held, it will be introduced tomorrow to the Eurogroup of the 17 Eurozone ministers of Finance for final approval.
Then the procedure for the realisation of the Private Sector Participation to alleviate the Greek debt will be activated, which may need three weeks to be concluded. Then, after the Greek debt is cut down by at least €100bn (50% haircut of the privately held bonds), the EU-ECB-IMF package of soft loans along with plus funds for the recapitalisation of the Greek banks will be released, amounting to a total of €130bn. In this way Greece is expected to reduce its over-all sovereign debt to 120% of the GNP, a benchmark below which the debt is considered as manageable. Is short Athens is today expected to set off the entire procedure.
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