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Inside Story
Bailing out Greece, again
But why will this bailout work when an earlier one failed and has Greece now surrendered control of its own economy?
Last Modified: 22 Feb 2012 09:14

After more than 14 hours of negotiations in Brussels an agreement has been reached on a rescue package to the tune of $170bn that will allow Greece to pay its debts, which are due in less than a month.

The deal ensures that Greece will not be forced into defaulting on what it owes in the short term.

"It was a bad deal, reached at gunpoint as far as the Greek government is concerned. The new government will have to work around this in order to enhance growth measures and reduce austerity levels because austerity on top of austerity will not do the trick. If you keep milking a cow without feeding it you are not going to end up with the desired results."

- Constantine Michalos, the president of the Athens chamber of commerce and industry

Despite reservations over Greece's ability to deliver on austerity measures, eurozone finance ministers have given Athens billions of euros to rescue the country from its financial woes.

Reacting to the second tranche of the bailout, Lucas Papademos, the Greek prime minister, described the day as a historic one for the Greek economy.

"With today's decisions, we are given an opportunity to move towards more stable conditions, to reduce the uncertainty which has affected the economic activity and enhance confidence in the prospects of the Greek economy," he said.

"In this way, the adjustment process of the economy can be facilitated and also better conditions for its recovery can be provided and new jobs can be created."

But some financial experts argue that once again the can has been kicked down the road to be dealt with later.

The conditions of the second bailout include $399m cutbacks in military spending, a $40m saving by reducing staff numbers in central government, and reducing the minimum wage, as well as slashing overtime pay for doctors in public hospitals by at least $66m.

What this means is further budget cuts which are already deeply unpopular with the Greek people who have continuously opposed harsh austerity measures imposed following the first bailout in 2010.

"The political system has very low credibility and in order to proceed with these tough measures you need to have credible political personnel, which we are lacking right now. Hopefully there will be an inflow of new people from the private sector. There is a huge debate as to whether the major parties will survive this economic crisis."

- Fokion Zaimis, a small business owner

As before, eurozone finance ministers say they want assurances Greece will stick to its promises.

Their comments were backed by the contents of a leaked report from the European Commission, the Central Bank and International Monetary Fund.

The report predicts that Greek debt could stay at a staggering 160 per cent of the country's GDP by 2020, unless drastic changes are made.

Critics say the new measures to bail out struggling countries have to be matched by economic reforms.

Jan Kees de Jager, the Dutch finance minister, said: "When you look at the derailments in Greece which have occurred several times now, it is probably necessary that there is some kind of permanent presence of the troika in Athens, not every three months, but more on a permanent basis. I am in favour of that."

So why should this bailout work when a previous one has failed, and in accepting the stringent conditions attached, has Greece surrendered control of its own economy?

To what extent will this second bailout rescue Greece's shattered economy, at what cost and how is this going to impact Greece's internal politics?

Joining presenter Mike Hanna on Inside Story are guests: Fokion Zaimis, a small business owner and the CEO of Science Park; Vicky Pryce, a Greek-born economist and the former joint head of the UK government economic service; and Constantine Michalos, an economist and president of the Athens chamber of commerce and industry.

"There is already an EU task force here and they are trying to make sure that the various ministries that are important to the economy do the right thing. But there is a concern that actually some of that money will never be spent, it won't be spent correctly, it won't be value for money and it won't benefit the economy."

Vicky Pryce, a Greek-born economist


Greek debt facts:

The second tranche of the rescue package is $170bn (€130bn), the first was $460bn (€350bn)

Funds were needed to avoid bankruptcy on March 20

The national debt amounts to more than 160 per cent of the GDP, which the second bailout aims to reduce to 121 per cent by 2020

The government has agreed to slash 15,000 public sector jobs by the end of this year

Taxes are expected to increase by €3.4bn in 2013

Private sector banks have offered to write off 50-70 per cent of the debt
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