ATHENS – With a first bailout of $152 billion failing to slow Greece’s slide towards default, a second rescue package of $169 billion won’t be enough to save the country either, and another $20 billion at least will be needed, according to many experts. Reports from discussions Greece is having with the Troika of the European Union-International Monetary Fund-European Central Bank for another round of loans indicated that the country is a money pit and needs a more massive infusion of money than previously expected.
That news came as Greece is trying to convince investors to take 70 percent or more in losses as part of the deal for a second bailout, but that would require the government to impose more of the same type of austerity measures that have created a deep recession and left many Greeks destitute and homeless. A European Union official told the Associated Press that the second bailout isn’t big enough, echoing comments from IMF chief Christine Lagarde earlier that it would have to be increased by “tens of billions of euros.” The Troika has been throwing money into Greece in hopes of staving off a default many analysts said is inevitable because of an unsustainable debt of more than $460 billion. Greece is in the fifth year of a recession made worse by the pay cuts, tax hikes, slashed pensions and coming scores of thousands of layoffs that have decimated consumer spending and shut down businesses.
The country’s debt is about 160 percent of Gross Domestic Product (GDP) and Troika officials said it must be reduced to 120 percent by the end of this decade, but that it will require bigger loans than expected, even though Greece can’t pay them back. The EU official, speaking on condition of anonymity, told AP that the burden will fall on the other 16 countries in the Eurozone using the euro as a currency, meaning taxpayers in those nations will be forced to pay Greece’s bills and debt.
Another option is for the ECB to take losses on its loans to Greece, which it has refused to do while requiring private investors to take big hits. The ECB gets much of its funding from banks in other EU countries, who are balking at taking deeper losses. Analysts estimate that the ECB holds $65 to $72 billion in Greek bonds but can’t erase the debt without violating the rules of the EU treaty which prohibits the bank from financing governments. Writing off a debt would be, in effect, transferring money directly to a government.
The new push for Greece’s public and government creditors to take a cut on their investments — dubbed the official sector involvement, or OSI — is a new front in the battle to save the country from a potentially devastating default. The admission came as recognition that pouring endless amounts of money into Greece is failing and that the Troika is desperately trying to find a solution so that the rest of the Eurozone won’t fail. Greece is sinking under the weight of decades of profligate spending and now wants private and public investors who bailed out the country to forgive much of the loans.