GREECE YESTERDAY looked into the abyss and stepped back. And it must do so again today. The Athens parliament’s relatively comfortable majority of 155 votes to 138 approving the government/EU/IMF €28 billion austerity plan and €50 billion privatisation programme marks an important and welcome, albeit painful, recognition that there is no alternative.
Yesterday’s Bill set out a total €14.3 billion in spending cuts, and €14.1 billion in tax increases and the creation of a privatisation agency. A second vote, enabling specific budget measures and privatisation of specific assets, will be today.
Yet, as EU economic affairs commissioner Olli Rehn made clear, there was “no plan B”. Had Greek MPs voted the measures down, Greece would not have received the €12 billion it needs within days to pay wages and pensions, and would have automatically defaulted on its €355 billion debt mountain. Simply drifting into default – “default by default”? – would wreak far more pain on Greeks than they are currently enduring and contagion in the euro zone would be a real likelihood. Whether a managed default would produce the same result we may yet have to discover.
Greece is by no means out of the woods and default is still possible, some say inevitable, although the welcome French roll-over plan to extend the life of some of the Greek debt will help and may be a useful precedent for Ireland. The complex structure of the deal, with costly collateral built in, far from representing a major participation by the private sector, actually helps offload risk from the bank balance sheets and, as financial commentators have pointed out, leaves the European taxpayer as exposed as ever. Indeed, for longer.
In a heated debate in the Athens parliament, opponents said the agreed measures merely delayed the inevitable and would do nothing to solve Greece’s underlying problems. “In three months, when we will see more of the same taking place, what will be your arguments then?” asked Alexis Tsipras, leader of the SYRIZA coalition of communists, ex- communists and socialists.
He may be right but, in truth, not to have taken the decision yesterday would have made a certainty out of what is otherwise a possibility. It also bought time for the government to show to sceptical markets and European partners that it is determined to, and can, implement far-reaching reform.
The challenge for Prime Minister George Papandreou is daunting. The crisis has bankrupted not only the state but the political system. The rioting anarchists and the daily demonstrations of the “Indignant” are the tip of an iceberg of inchoate discontent and alienation from the whole political class in both working and middle class communities; and there is a real danger that the brutal medicine will kill the patient. Take that much out of an economy, and what chance growth? Or hope, or re-engagement of citizens? Having got its pound of flesh, the EU-IMF must now seriously consider how it can cut Papandreou some slack and room for manoeuvre. The alternative is inevitable failure.