Will Greece Need a Third Bailout?

ATHENS – Greece – for now – has been saved from default after Eurozone leaders agreed on a second bailout of $171 billion along with a first ongoing series of $152 billion in loans to keep the debt-choked country from going under, but already, doubts are emerging as to whether it will be enough. The rescue packages from the Troika of the European Union-International Monetary Fund-European Central Bank come with conditions of deep austerity measures that have created a recession of 20.9 percent unemployment and the closing of more than 111,000 businesses, and many analysts say the second deal will just cause more of the same, and that Greece won’t be able to make the structural reforms nor privatize state assets fast enough to slow its slide toward economic failure.
Greece may need another bailout of as much as $152 billion more, the Financial Times reported, citing a confidential report on Greek debt projections prepared for Eurozone finance ministers, according to Dow Jones. If so, the amount owed to international lenders could reach $385 billion with little chance of repaying it all because the pay cuts, tax hikes, slashed pensions and upcoming layoffs of over 150,000 public workers over the next three years have plunged Greece into its fifth year of recession, and even the most optimistic projections are that debt, now 160 percent of Gross Domestic Product (GDO), won’t go below 120 percent until the year 2020.
That’s too far off for many Greeks who are suffering under an avalanche of austerity, as the country has little chances of stimulating growth and competitiveness, and as expected tax revenues are falling far short of expectations. Even a write-down in debt of as much as 70 percent of what it owes that is still being negotiated isn’t expected to curtail the problem. The Wall Street Journal reports that Greece needs at least 90 percent of investors to agree to take big losses or the country will make them do so involuntarily, which would automatically trigger a default under ratings agency guidelines.
The ECB and the other 16 countries of the Eurozone who use the euro as a currency are also agreeing to forgo profits on their Greek bond holdings, which could mitigate Greece’s debt exposure but itself wouldn’t be enough to stave off default. The bailout package will also need to pass parliamentary approval in Austria, Finland, Germany, Netherlands, and Slovenia.
None of that matters to Greeks though, especially since the second deal requires Greece to change its Constitution and put as much of the bailout money as needed into a special fund to pay banks and creditors first and whatever is left over could go to workers, pensioners and the government. Perhaps the biggest problem though is that the hybrid Socialist-Conservative government being led by former ECB Vice-President Lucas Papademos, who negotiated the deal, will dissolve in April when new elections are held. Antonis Samaras, head of the conservative New Democracy party who is leading in the polls, and who has flip-flopped on first opposing austerity and then supporting it to get the second bailout done, again says he opposes it as it has proved unpopular with voters, and his party, although the front-runner, has only 19.4 percent compared to 13.1 percent for the PASOK Socialists.
Samaras, who would become Prime Minister but not have the majority needed to control Parliament and would have to form another coalition with his political enemies, said the new bailout was “significant” and “positive”, but said unless the economy grows it won’t work and, “The immediate fiscal targets can (not) be met, nor can the debt become sustainable in the long-term,” Dow Jones reported he said.
EU and IMF analysts concurred with that. “Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it,” their report said, according to the Bloomberg news agency, and the debt won’t go down, meaning the bailouts and sacrifices of Greeks may have been in vain.