After more than eight years, three international bailouts of 326 billion euros ($373.22 billion) for Greece will expire at midnight on Aug. 20 – quietly – after the ruling Radical Left SYRIZA-led coalition canceled plans for a celebration in the somber aftermath of July 23 wildfires that killed 96 people and left the government trying to defend a chaotic response.
With Turkey’s economic crisis spilling over and raising the costs of borrowing and worrying markets, and Prime Minister Alexis Tsipras’ claims of a “clean exit” without further scrutiny from the lenders dashed, the end of the rescue packages will come almost without notice, unlike the tempestuous years of protests and riots, Greece’s economy shrinking 25 percent and thousands of lives devastated by big pay cuts, tax hikes, slashed pensions and worker firings.
“There are no plans for a fiesta,” the leader of SYRIZA’s parliamentary group, Costas Zachariadis, said, Kathimerini reported in a piece marking the expiration of the bailouts and what comes next – continued austerity and years of nonitoring by the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) and the Washington, D.C.-based International Monetary Fund (IMF).
Still unable to return to the markets and without any more bailout monies, Greece will rely for up to 22 months on a 9.5 billion euros ($10.88 billion) cash buffer set aside from the last 15 billion euros ($17.17 billion) installment from a third bailout of 86 billion euros ($98.46 billion).
At some point, Greece will be at the mercy of the markets and two previous test bond sales of 3 billion euros ($3.43 billion) sold at rates more than three times higher than the bailouts. A recent debt relief deal provided more time to repay but not lower interest, showing the eventual cost of borrowing from private investors will be costly, especially with memories of a 2012 stiffing of bond holders of 74 percent of their money by a previous government.
With so much on his plate, and with polls showing constant reneging on anti-austerity promises has driven him far behind the party he unseated, the New Democracy Conservatives, Tsipras will speak to the nation on TV where he’s expected to again claim he’s bringing a recovery at the same time he said the debt can’t be repaid and without mentioning his broken promises.
That comes as he’s readying a Sept. 8 address at the Thessaloniki International Fair (TIF) where Prime Ministers traditionally make big pledges they usually can’t deliver, an event more for grandstanding than substance.
That could mean he will either set aside or low-key expectations he would vow new handouts and relief measures for workers, pensioners and the poor he buried with more brutal measures and which would be far less than the losses they’ve suffered since he came to power in 2015.
His rosy optimism will also bump up against analysts who say there will be a hard and long road out for Greece’s economy that will take decades to fully recover. With SYRIZA spinning it has done everything right, even Zachariadis said that the government shouldn’t prematurely rejoice“as if a large section of the Greek population doesn’t have a serious financial problem.”
Successive governments had borrowed heavily for three decades to fund generous spending on pensions and jobs given to political supporters, while tolerating widespread tax evasion and covering up budget shortfalls.
All that blew up mightily in October 2009, when Greece admitted its budget deficit was much bigger than previously reported. Shocked investors no longer would risk loaning Greece money at affordable rates, forcing the government to turn to rescue loans from the other Eurozone countries and the International Monetary Fund.
The loans came with tough conditions: closing deficits, which led to aggressive tax increases and spending cuts; and a raft of reforms aimed at improving tax collection and the business climate in general. The economy, hit hard by spending cuts, shrank by a quarter.
Of the debt,which is more than 180 percent of Gross Domestic Product (GDP,) some 256.6 billion euros ($293.77 billion) is owed to Eurozone creditors and 32.1 billion euros ($36.75 billion) to the IMF. In 2012, about 107 billion euros ($122.5 billion) in debt was lopped off by inflicting losses on private bondholders.
Greece will remain subject to quarterly visits by technical experts to make sure it is meeting agreed targets for public finances until the last bailout loan is repaid, in 2060 but there will be no new reforms apart from those already agreed by Tsipras, including more pension cuts starting Jan. 1, 2019 and new taxes on previously exempt individuals and families in 2020, when he may not be in power with elections required to be held by October of next year.
Some experts say that the best way to help Greece would be for eurozone countries to write off a part of the loans altogether. But governments have balked at that. The bailouts were unpopular, particularly in Germany, and loan forgiveness would be a tough sell for leaders such German Chancellor Angela Merkel as it would require the other 18 Eurozone countries to pay the bill for generations of wild overspending and runaway patronage by Greek governments who could then be free to do it again.
The IMF and prominent economists say that if part of Greece’s loans are not written off, its debt loan will eventually start to rise out of control again. Greece is meant to run exceptionally large budget surpluses before interest payments — so-called primary surpluses of 3.5 percent of GDP through 2023, and 2.2 percent thereafter.
The IMF says very few countries historically have been able to do that and it doesn’t include interest on the debt, the cost of running cities and towns, state enterprises, social security and some military expenditures nor bills that aren’t being paid.
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The IMF fears Tsipras will renege on promises to the lenders the way he did to voters and that cuts could be undone by politicians who want to stay in power and not be run out of office by angry and hurt people.
Spending on state health care in Greece, for instance, has been squeezed to one of the lowest levels in the Eurozone, with the poorest 20 percent of Greeks saying they spend 44 percent of household income on out-of-pocket medical expenses and many reporting they have simply done without medical care.
George Pagoulatos, a professor at the Athens University of Economics and Business, said that in the end the country’s creditors may have to lower their expectations for how much Greece can save and that lower surpluses plus better economic growth from the pro-business reforms could be the key to make debt sustainable.
“It doesn’t mean that tax evasion has been eradicated or that governments will no longer do favors for their supporters,” Pagoulatos said. But the degree of reform should not be underestimated. The changes over eight years “have been very significant and they must have an impact on productivity.”
Τhe President of Greece’s Hellenic Confederation of Commerce and Entrepreneurship (ESEE), Vassilis Korkidis told Japan’s NHK group and China state television (CCTV) the bailouts end doesn’t mean misery will end for man.
“Our country formally leaves a long eight-years memorandum period, leaving behind 924,000 unemployed, 250,000 SMEs out of business and most of the Greek people with arrears to tax authorities, insurance funds and banks, of 227 billion euros ($259.88 billion,)” he said.
“The Greek economy is still vulnerable to internal and external risks. In the post-memorandum period there will not be an ‘all good’ in Greece, but we are well prepared to overcome obstacles in the next four year period. The 21st of August 2018 is a date of consideration and not celebration…”
(Material from the Associated Press was used in this report)