Monday 20 November 2017

The Greek bail-out: What’s the story?

Geoff Meade

The Greeks are revolting, the euro is tumbling and the talk is of economic meltdown across Europe - it's Groundhog Day all over again...

:: Please explain: why are we in another Greek crisis over the euro?

- Actually it's the same crisis, exacerbated by the failure of national austerity measures to revive the Greek economy. That is why the Greek prime minister is trying to form a new government, win a vote of confidence and get his people to tighten their belts even more.

:: Wasn't this sorted out when the European Union and the International Monetary Fund first agreed a bail-out package last year?

- In theory, but the economic cuts Greece introduced as a condition for getting the bail-out have failed to deliver the necessary deficit reduction and now Europe is facing the prospect of another bail-out.

:: But in return for another bail-out won't Greece have to agree even more belt-tightening?

- Exactly, which is why Greeks are revolting over the threat of more tax hikes, pay cuts and job losses, and why the euro is weakening again under speculative pressure.

:: Is there any point throwing more money at the Greeks?

- Sadly, yes: it's not just a question of bailing out the Greeks but limiting "contagion" to other eurozone countries and restoring market confidence in the single currency.

:: Isn't that what everyone said last time?

- Yes, and it's even more urgent now, but this time there's a rumpus among EU nations about how to do it. Germany, backed by the Finns and Austria, and the International Monetary Fund, want Greece's private creditors to share some of the burden by extending their credit lines to Greece. But others, led by France, the European Central Bank, and the International Monetary say that would amount to a dreaded "default" by Greece, and hit the euro really hard.

:: Who is right?

- It depends which economic model you favour as the way to restore the fortunes of the Greek economy and the euro more widely. No one has the perfect solution, and nobody has got it right in this economic crisis so far.

:: What happens next?

- A lot: the next slice of the original 110 billion euro Greek bail-out is due to be agreed by eurozone countries on Sunday, with the IMF (which contributes a share) wanting to see what new longer-term plans the EU has for propping up Greece. Then a second bail-out package for the Greeks should be agreed at more talks on July 11.

:: And what about Greece?

- The Greek government - whatever government and whoever leads it - must get another economic reform programme through parliament in the face of mounting public opposition, preferably by the end of this month.

:: It's a tall order isn't it?

- It always was, and as much hangs on market perceptions about the state of the eurozone as the reality. The fact is that gossip about Greece falling out of the euro and returning to the drachma is not being ridiculed as much as it was a year ago.

:: And what about the state of the Irish and Portuguese bail-outs, and the prospect of the Spanish economy needing to be bailed out too?

- I'm sorry, I can't cope with any more of your questions.

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