Greece attempted to secure the next tranche of its bail-out package this week. As the country has fallen short of its deficit-reduction targets, the troika of institutions monitoring its progress – the European Central Bank, the European Union and the International Monetary Fund – is insisting on further austerity measures before releasing the €8bn payment. Talks are set to continue in Athens next week. Without the money, Greece is likely to run out of cash to pay its bills by mid-October, although it would not risk default immediately, as no payments on sovereign bonds are due until December.
What the commentators said
Greece is miles behind on its targets, as FxPro.com pointed out. Year-to-date, the deficit as a percentage of GDP has been a fifth higher than last year. What’s more, the latest growth estimates suggest that the economy will shrink by 5.5% this year, instead of the 4% pencilled in. A vicious “austerity-recession spiral” appears to be setting in, said Lex in the FT, with austerity damaging growth and lowering government revenues. That in turn is causing fiscal slippage and necessitating more austerity.
But the government isn’t exactly helping itself, said Takis Michas in The Wall Street Journal. One leading analyst notes that it hasn’t fired a single civil servant in 12 months and has taxed the private sector “out of existence”. Structural reform plans, including liberalisation and privatisation, have got nowhere. “Greece’s plans tend to resemble Soviet Five Year Plans: they look good on paper but have absolutely no bearing on reality.”
Still, the Greeks “will probably do just enough” to secure the latest tranche of cash, said Economist.com. After all, policymakers have not developed a strategy to bring about an orderly Greek default, so a continent-wide banking crisis remains a threat if they pull the plug.
But giving it the cash would simply defer the problem; it’s hardly a long-term solution. And worries about further eventual peripheral defaults are unlikely to dissipate. “The miserable failure of EU politicians to tackle the problems posed by Greece,” said Sony Kapoor of Re-Define, a Brussels think-tank, “does little to inspire confidence that the much larger and more urgent” problems Italy is grappling with would be managed any better.”