Disgruntled Greeks Protest New Austerity Measures - Niki Kitsantonis and Rachel Donadio via NYTimes.com →
The Troika doesn’t think the Greek technocratic government is moving fast enough to make demanded ‘structural reforms’ — like breaking union agreements and pension promises — so they surprised everyone by demanding more austerity:
Niki Kitsantonis and Rachel Donadio via NYTimes.com
Greece’s so-called troika of foreign lenders — the European Commission, European Central Bank and International Monetary Fund — has demanded sweeping austerity measures in exchange for $170 billion in bailout money that Greece needs in order to avert default. The troika has also made passage of the measures a condition for sealing a deal in which private creditors will take voluntary losses of up to 70 percent of Greek debt.
But nearly two years after Greece’s first bailout, Athens and its lenders are at a dangerous impasse. Europe has lost confidence that the Greek government has the will or capacity to follow through on its commitments to structural changes. Greeks, whose standard of living is dropping precipitously with no end in sight, have lost confidence that the bailout will actually save the country from default.
With so many variables and so little time, some experts said that almost any outcome was possible, from disorderly default and chaos to a new agreement and at least temporary calm. “Greece defaulting is probably just as likely to happen as a result of an accident as an act of will,” said Platon Tinios, an economist at the University of Piraeus. “If you are skating at the edge of a precipice, the slightest push could push you over.”
For now, both sides appear to lack a viable Plan B. Behind closed doors in Brussels at a meeting of euro zone finance ministers on Thursday, the lack of trust was evident — and may have put the entire bailout at risk.
The ministers had been expected to approve with little fuss the austerity package negotiated among Greek politicians. Instead, the European ministers made it plain that they did not believe the figures provided by Greece. They jolted Athens by insisting that it find an additional $428 million in savings — to make up for a shortfall created by the refusal of political leaders to slash supplemental pensions — before their next meeting, expected on Wednesday.
So, if European leaders don’t believe that Greece can sustain the current loan levels, and there is no way that country can grow out of its paralyzing depression, what then? No one will want to give them more loans to simply pay older loans.
The only option — as many have said for years — is for Greece to drop the Euro, reintroduce the Drachma, and to default on the loans. That’s what Argentinia did, for all intents and purposes, in the 90s, when it dropped the linkage of the peso to dollars, and defaulted. This would create a large productivity shift, because Greek goods and services would be competitively priced.
It’s odd that the authors suggest there is no ‘Plan B’ when the stark option of leaving the Eurozone is so obvious.