Wednesday, June 29, 2011

The Greek can of worms gets kicked down the road

June 29, 2011

That's one Greek crisis out of the way; get ready for the next. Today's vote in the Greek parliament merely ensures that default will not occur next month, and probably not this year. The European Union, the International Monetary Fund and the European Central Bank will now sign their outstanding cheques from the last bailout. Then they will prepare to write more cheques worth €100bn or so – but with extra strings attached. That's when the next crisis starts, and when default comes back into view.

The lenders have not even agreed on how to design a loan package that can impose modest levels of pain on creditors while not being deemed a "credit event" – the dreaded technical default. The French idea of obliging banks to roll over maturing debt – or encouraging them to "volunteer" to do so – is a contortion that could still fall apart when prodded over coming weeks.

But, even assuming that obstacle can be cleared, consider what Greece has to do to ensure the €100bn actually arrives in tranches until 2014. For a start, it must raise €50bn from privatisations and cut about 150,000 civil service jobs. Is it credible that this will happen on the timetable dictated by Brussels and Berlin? And, if the quarterly health-checks reveal the patient is slacking, are the eurozone lenders prepared to squeeze Greece even harder?


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