Jeremy Warner: This latest deal only hastens the day when Greece will have to leave the euro
WELL there's a surprise. A "strictly confidential" 10-page debt sustainability report commissioned for yesterday's meeting of eurozone ministers concludes that the austerity measures being foisted on Greece as a quid pro quo for a second, €130bn bailout, are quite likely to prove self-defeating, in that the austerity, by further weakening the economy, may well cause the debt to GDP ratio to rise further.
Furthermore, the debt "haircut" being required of private investors may prevent Greece from ever returning to private markets for borrowing, making the country indefinitely reliant on official support. After the bailouts, so much of Greek's debt will be held by official repositories, all of who will have preferential treatment as creditors, that no private sector investor would go anywhere near it, knowing he'd be last in the queue of creditors.
These points may have been obvious to everyone else for a long time now, but I guess final acknowledgement of these inconvenient truths must be seen as progress amid the grand delusion of eurozone policy-making.
You kind of wonder why they are any longer bothering given the quite high probability of eventual failure they assign to the bailout. Even under the favourable scenario outlined in the sustainability report, Greece is going to need a third bailout of €50bn by the end of the decade on top of the €136bn agreed in principle last night. By the way, this favourable scenario makes the heroic assumption that the Greek economy stops shrinking next year and returns to 2.3pc growth in 2014. Few believe that's remotely possible.
Under a "tailored downside scenario", which I have to say looks pretty optimistic to me, debt would fall much more slowly than hoped for reaching only 160pc of GDP by the end of the decade, rather than the 120pc the eurozone requires of Greece. In such circumstances, €245bn of bailout money would be required.
If you think such a handout intolerable for the rest of the eurozone, just think what the programme means for the Greeks. As part of the deal, the Greek government has committed to enshrine into its legal framework a provision to give priority to debt service payments above all other public expenditure, including its inclusion in the Greek Constitution as soon as possible. This is the sort of thing that prompts revolutions.
Already, polls published by local Greek media indicate that the centre parties (PASOK and ND, and in particular PASOK) are losing popular support hand over fist, so it matters not a jot that the two main coalition parties have signed up to full ongoing implementation after elections in April. In contrast, the parties further from the centre continue to gain popular support, and none of these have expressed support for the next programme.
The programme also has to be approved by a number of national parliaments elsewhere in the eurozone. I won't say this is a programme that can't fly, because the eurozone has repeatedly defied the sceptics in holding the whole thing together thus far. But it is certainly a programme that cannot succeed, and only brings closer the day when Greece is forced out of the eurozone.
© Telegraph.co.uk
