ATHENS – Just as Greece is seeking a second bailout to keep its economy from failing and defaulting on its loans under the weight of a staggering $460 billion debt – $41,818 for every man, woman and child in the country – coalition government officials said they are nearing an agreement on a deal to write down as much as 70 percent of what it owes private investor, but now want a second forgiveness from European Union countries footing much of the rescue package bill.
The first phase, a so-called Private Sector Involvement (PSI) negotiation with banks and other lenders who are loaning Greece money is said to nearly concluded, officials said, and would help write off $171 billion in loans the government said it can’t pay back, although $39.5 billion would be given back in sweeteners on condition the lenders accept the deal. The Troika of the EU-International Monetary Fund-European Central Bank is providing Greece $152 billion in a first bailout and offering a second for $169 billion, but Greek officials now want the other 16 countries of the Eurozone using the euro as a currency putting up rescue money to accept losses too, a so-called Official Sector Involvement (OSI.)
Interim Prime Minister Lucas Papademos, who is heading a coalition government formed on Nov. 11, 2011 when Socialist Prime Minister George Papandreou resigned after nearly two months of protests, riots and strikes against austerity measures he imposed on orders of the Troika in return for the loans, said: “We are in the final phase of this very critical process to shape a new financing program for Greece and to complete the loan agreement which will lighten the burden of public debt and ensure funding for years to come,” Papademos said in a statement. He added the plan would “restore fiscal stability, improve competitiveness, revive the economy and increase employment,” although pay cuts, tax hikes, slashed pension and layoffs have created a deep recession with more than 19.2 percent unemployment and lead to the closing of more than 100,000 businesses and the Troika wants more job-killing cuts.
Greece is in a fifth year of recession caused by alternating Administrations of PASOK Socialists and their bitter rival conservative New Democracy party packing public payrolls with political hires in return for votes, creating a hugely-bloated workforce in which offices are stuffed with people sitting around smoking and drinking coffee with little to do except collect paychecks.
Troika officials are concerned that Greece’s uncompetitive economy has doomed the country to a fate in which it can’t recover. “Greece is in deep trouble,” Holger Schmieding of Berenberg Bank in London said in a Jan. 30 report. “The current Greek adjustment program is failing. Excessive austerity, a lack of supply-side reforms, administrative incompetence and political deadlock have pushed the Greek economy into an apparent death spiral. More of the same will not work.” Deutsche Bank Chief Executive Officer Josef Ackermann, who is negotiating on behalf of banks through the Institute of International Finance (IIF,) said he expected a deal “in the coming weeks, maybe days,” although the same prediction has been given by the lenders and government officials repeatedly and never materialized.
Meanwhile, worry is growing among lenders that Greece can’t be saved no matter how much money is poured into the country. “We can’t pay into a bottomless pit,” German Finance Minister Wolfgang Schaeuble said. “Greece needs a new program, there’s no question about that, but Greece must create the conditions for it.” Papademos is being squeezed to impose more of the austerity that drove Papandreou from office and deal with a recalcitrant group of ministers in the temporary tri-partite government of holdover PASOK ministers, along with New Democracy and the far Right-Wing LAOS party. He also is being told to open closed professions that enjoy monopolies and speed privatization of state-run-and-owned entities, although the investment uncertainty has created a complete shutdown of interest in acquiring Greek assets.
The tension has reached such a level that Papademos’ spokesman, Pantelis Kapsis, denied reports that the Premier would resign unless his coalition agrees with the reforms and Troika demands, even as labor unions are girding to resist demands that private sector wages and benefits be cut drastically as well to make the country more competitive. Adding to the apprehension was a letter from the country’s leader of the Greek Orthodox Church, Archbishop Ieronymos, who said austerity is killing the country and putting people on the streets because they are homeless, while hundreds of thousands of workers can’t afford an avalanche of tax hikes as their wages have been cut nearly 30 percent. A key stumbling block to consensus is the private sector wage reductions of 25 percent and elimination of the $988 per month minimum wage, a condition fought for by labor unions to insure people have enough money to live on, but which the Troika said is too expensive.