ATHENS – Greece is nearing the cusp of defaulting on its loans and going under because its political leaders have failed to implement structural reforms as promised, a memo from the International Monetary Fund has warned, leading French President Nicolas Sarkozy and German Chancellor Angela Merkel to say no more international loans will be disbursed until the country agrees on a deal with private investors which would write down its debt. Merkel and Sarkozy said a planned second bailout of $169 billion will be withheld, even as the next round of loans from an initial package of $152 billion that came with attached austerity measures, which have created a deep recession in Greece, have been delayed.
A coalition government led by former European Central Bank Vice-President Lucas Papademos, comprised of holdover ministers from the failed PASOK Socialist Administration, their bitter rival New Democracy conservatives and the far Right-Wing LAOS party that took power on Nov. 11, 2011 when former Prime Minister George Papandreou resigned, has been stuck in neutral amid squabbles and made no progress on the second bailout or the Private Sector Involvement (PSI) which would absolve Greece of as much as 65 percent of its debt. Finance Minister Evangelos Venizelos, who has imposed waves of tax hikes to go along with big pay cuts, slashed pensions and thousands of layoffs, has repeatedly said a deal was imminent, but other analysts say it may not materialize because investors don’t want to take deep losses to save the Greek economy.
A default could threaten the 17-nation Eurozone of countries using the euro as a currency and jeopardize the world economy as well. Sarkozy and Merkel want banks and investors to take losses to save Greece and the Eurozone, but skepticism is building that Greece can even survive no matter how much money is thrown at the problem, because political leaders have so far refused to go after major tax evaders costing the country more than $60 billion and a privatization plan to sell or lease state entities has stalled.
The French and German leaders rejected both a call by an ECB policymaker to abandon plans to make private investors take losses, and a leaked IMF memo that cast doubt on Athens’ ability to reform its public finances. The memo, quoted by the German magazine Der Spiegel, said the freefall of the Greek economy has made international lenders’ plans to rescue Greece obsolete, threatening the debt sustainability of the embattled euro member state. Merkel said she wanted Greece to stay in the Eurozone, and a private sector debt write-down was “a necessary but not sufficient precondition to get Greece back onto an acceptable path.” She added: “Greece should get a chance but Greece remains a special case,” adding that Athens must commit to further economic reforms.
The IMF, along with the European Union and ECB, form the so-called Troika lending Greece the rescue money. “We must see progress on the voluntary restructuring of Greek debt,” Merkel told a joint news conference. “From our point of view, the second Greek aid package including this restructuring must be in place quickly. Otherwise it won’t be possible to pay out the next tranche for Greece,” an installment without which Greece won’t be able to pay its workers or pensioners. The austerity measures have created 21 months of social unrest, protests, riots and strikes, and more loom as Papademos has said he may not be able to keep his vow to not impose more pay cuts or tax hikes which have hit mostly the working class, poor and pensioners while the country’s rich elite, business leaders and tax evaders have escaped with near impunity.
HELPING ONLY THE RICH
Papademos warned that without the aid, Greece could default, leave the Eurozone and return to the drachma, a scenario the Governor of the Bank of Greece said would be catastrophic and return the country to the 1950’s. Czech Central Bank Governor Miroslav Singer said in a newspaper interview that Greece is doomed unless Europe is willing to provide “massive” funding for the country which is sinking under $460 billion in debt, and has a deficit still hovering above 10 percent despite the austerity measures. Singer told daily Hospodarske Noviny that Europeans should focus on helping banks which may need recapitalization and on issues that can be resolved, rather than devoting attention for years to Greece, which represents just two percent of the European economy.
“If there is not the will to give Greece a massive amount of money from European structural funds, I do not see any other solution than its departure from the euro zone and a massive devaluation of the new Greek currency,” he said. “So far Greece has been given loans that served mainly for buying time and for rich Greeks to move their money out of the country. This lowers the trustworthiness of Europe and the willingness of non-European countries to lend or provide new capital to the International Monetary Fund for helping Europe,” he said.
A Greek government official told Reuters that talks with private bondholders on a debt swap key to averting default were progressing but there was no deal yet. However, a senior insurance executive briefed on the negotiations said they were very difficult and likely to be unsuccessful. The executive, was not at the table in person, said roadblocks included factors such as whether a debt write-down would trigger credit default insurance or not, and how a sufficient number of creditors could be corralled into joining an agreement.
German Finance Minister Wolfgang Schauble said Greece must push through tough reforms demanded by the country’s foreign creditors if it wants to remain solvent, noting that the debt-wracked country cannot depend on a constant stream of rescue funding. “Greece must implement everything that has been agreed,” Schauble was quoted as telling the German radio station SWR2. “All the rescue packages in the world cannot help if the causes (of the problem) are not addressed,” he said.
(Sources: Kathimerini, Reuters, New York Times)