July 28, 2012
On his visit to Athens this week, José Manuel Barroso, the head of the European Union (EU) Commission, brought a stern warning for Antonis Samaras, the new prime minister of a precarious right-left coalition government. Greece has only a couple of weeks left to convince its creditors that it can put economic reforms back on track. Should its latest plans for making €14.5 billion ($17.6 billion) of spending cuts over the coming two years be judged unrealistic, the next €31.2 billion loan tranche will again be held back.
If that happens, Greece would be unable to finish recapitalising its big banks. Without credit, the economy will seize up. Pensions and public-sector salaries would not be paid. A “Grexit” from the euro could occur within weeks. The worry for Greeks is that with Spain and Italy coming under attack in financial markets, some euro-zone members may be tempted to sacrifice Greece.
Two previous Athens governments have failed dismally since mid-2010 to implement reforms agreed on with the Commission and the IMF, thanks to widespread official corruption and a lack of political will. Mr Samaras opposed the first Greek bail-out while in opposition; he still wants, at some point, to renegotiate parts of the second.