28th Feb 2024

Greek deal rests on appetite for more austerity

  • (Photo: EUobserver)

Eurozone countries have been quick to pat themselves on the back for greenlighting a second bailout for embattled Greece, but the deal is dependent on a wholesale change to Greek society while the rewards in terms of economic growth and employment remain a long way off.

Following a marathon meeting in Brussels ending early Tuesday morning (21 February), finance ministers agreed to give Athens a second €130bn bailout in order to stave off an imminent and disorderly default, prompted by bills it has to pay on 20 March.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The deal is a complicated mixture of loans from eurozone countries, the International Monetary Fund (whose share still remains unclear) as well as an agreement by the private sector to take a writedown on Greek bonds.

In return, Greece has to accept an "enhanced and permanent" presence of outsiders to monitor its progress and has agreed that paying back its debt is given priority over any other spending.

Shaky foundations

But the agreement rests on rickety and unpredictable legs - the ability of Greek politicians to deliver reforms that they were unable to deliver in return for the first €110bn EU-IMF bailout in 2010 and acceptance by an already austerity-weary Greek public.

The changes - required to cover a fiscal gap of 5 percent in 2013 and 2014 and make the country competitive - imply a thorough change to society, business and administration in Greece.

Specifically, the country still needs to make it easier to hire and fire people, needs to start means-testing family allowances, reduce supplementary pensions, reduce public investment, decrease wages to special sectors such as the police and military, close or merge government ministries, cut electoral spending, clean up the system for health reimbursements, cut the minimum wage and renegotiate collective agreement with unions.

The government also needs tackle what is seen as endemic tax evasion, although officials admit that this is a devil's quest as the more recession bites the less still is incentive to pay state dues.

This comes on top of the measures required for the first bailout which saw major pension reform, opening up of professions, and wage reductions - the combination of which has created a new poor in Greece and driven thousands to the streets in protest.

But the rewards for the current pains remain a long way off. Wages are expected to decrease by a further 15 percent over the coming three years.

Sources close to the negotiations say they expect the country to return to weak growth by 2014. But this assumption rests on the belief that the swathe of austerity measures will not create a self-perpetuating downward spiral.

Figures already show that Greece's economy will have contracted by more than 17 percent between 2009 and the end of 2012.


Meanwhile, unemployment has shot up from 9 percent in 2009 to above 18 percent now. The joblessness rate is expected to start decreasing only in 2014. A year later it is expected to still rest around 15 percent.

Monday's agreement was only reached after weeks of delay as Greek politicians were reluctant to be associated with harsh austerity measures ahead of general elections, due in April. A last stalling point was the requirement to find a further €325bn in savings to bridge a fiscal gap for this year.

It was agreed finally amid high drama on both the streets and in parliament. But the agreement was political. The actual measures - entailing pension and minimum wage cuts as well as chopping 15,000 jobs in the public sector - still have to be enforced.

Greek politicians have also made, under duress, the difficult promise to stick to the programme, whatever the results of the upcoming election.

EU monetary affairs commissioner characterised the deal as "unprecedented solidarity" by Greece's euro partners and called on "Greek political leaders to fully implement the programme."

However, in a sign of the difficulty, a timetable for privatisation of Greek assets - including land, buildings and state companies, meant to deliver €50bn by 2015 is acknowledged as having been far too ambitious. The new short term target is to get €19bn through the firesale of assets by this date.

Beyond Greece there may be other hurdles too. Both the German and the Dutch parliaments are due to debate and vote on the package next week, with the two countries regularly displaying the harshest rhetoric on Greece's reform efforts.

Eurozone agrees to Greek bail-out, but doubts remain

After a 14-hour meeting eurozone finance ministers and bankers have agreed on a second bail-out package for Greece with extra supervision and an "absolute priority" on paying back its debts. But doubts remain on whether the country will avoid default.

Pensioner suicide shocks Greece

A pensioner has committed suicide in central Athens, giving a human face to the hardship endured by many Greeks as the country slashes spending.

IMF: No money for Greece until Europe boosts its firewall

One of the many loose ends to the Greek bail-out agreed Tuesday is the lack of a firm commitment from the International Monetary Fund, pending a decision by eurozone leaders next week to merge the firepower of two bail-out funds.

Eurozone 'expected' Greek downgrade

Standard & Poor's has downgraded Greece to "selective default" due to a bond swap operation aimed at slashing some €100 billion off national debt.

EU supply chain law fails, with 14 states failing to back it

Member states failed on Wednesday to agree to the EU's long-awaited Corporate Sustainable Due Diligence Directive, after 13 EU ambassadors declared abstention and one, Sweden, expressed opposition (there was no formal vote), EUobserver has learned.

Latest News

  1. Von der Leyen appeals for 'new EU defence mindset'
  2. EU supply chain law fails, with 14 states failing to back it
  3. Joined-up EU defence procurement on the horizon?
  4. Macron on Western boots in Ukraine: What he really meant
  5. Amazon lobbyists banned from EU Parliament
  6. MEPs adopt new transparency rules for political ads
  7. EU nature restoration law approved after massive backlash
  8. Memo from Munich — EU needs to reinvent democracy support

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us