Athens gets big break but it's far from quick fix

Greek finance minister calls it a very good day but Noonan insists the country is much worse off than Ireland

GREECE HAS received a major reprieve from its bondholders, with a deal being confirmed to restructure €197 billion of its privately held debt.

Although the saving will be roughly €106 billion, the new bailout will see Greece continue to take on more debt from its backers in the euro zone and the IMF until its economy finally turns.

“Today, after a very long time, is a very good day [for Greece] as well as for me personally,” said Greek finance minister Evangelos Venizelos. “I hope everyone will realise, sooner or later, that this is the only way to keep the country on its feet and give it the second historic chance that it needs.”

For months last year, talk of an orderly default by Greece was dismissed by the European Central Bank as something of an impossibility with grave contagion risk.

In the event, it took so long to organise the deal that markets priced in its impact on the institutions which own Greek debt months ago.

For the record, there was no explosion of turmoil yesterday when the deal was done. At the same time, EU leaders insist the Greek case is unique and that none of the other euro zone weaklings will follow its example.

In Limerick last night, Minister for Finance Michael Noonan was quick to rubbish the notion that Ireland could receive similar treatment.

“They were totally insolvent and their situation is a way worse than our situation. And, of course, the conditions attached to the drawdown of the money are far more rigorous than the conditions that apply to Ireland,” Mr Noonan said.

“So at one level, people might say Greece has got a big write-down on its debt, but there was no other alternative. They were going to go broke and they were on the verge of insolvency and the conditions are extraordinarily stringent.”

Thus the argument goes, that other stricken countries – no matter how bad their situation – are not in the same position.

But even after the world’s biggest debt restructuring, Greece is not expected to achieve a semblance of sustainability until 2020. That’s a long way away, with numerous hurdles standing in the way of success.

At issue now is whether Greece and its sponsors can ensure the success of its second EU-IMF bailout in the weeks, months and years ahead.

The first, unsuccessful rescue was marred by ever-deepening recession and foot-dragging by the government. Although critics in Athens said the policy recipe made a bleak economic situation only worse, the second plan contains more of the same.

Backed by finance ministers, the EU-IMF-ECB troika insists that no other course is viable and that the Greeks did not receive the benefit of the first bailout precisely because they did not do as they were told.

An election is now imminent, in which conservative leader Antonis Samaras is likely to prevail. Samaras is avowedly sceptical of the consolidation plan – leading to arch scepticism about him in Europe – but he has pledged to implement it if he wins. Time will tell.

No matter who takes power, however, the new government will be under the scrutiny of full-time external inspectors checking its every move.

If that betrays a certain lack of trust, the fact remains that tax collection by the Greek administration is woeful and that its entire system of government requires urgent reform.

With noisy street protests a constant feature in Athens and ordinary Greeks set for considerably more pain under the second bailout, achieving that will not be easy.

Europe and Greece have won some time. Salvation is something else.