Thursday, November 8, 2012

Greeces staves off bankruptcy but troubles lie ahead

by Gavin Hewitt

BBC News

November 8, 2012

In Greece, the basic script is easy: the parliament last night narrowly passed the latest austerity package.

Its passage should release further EU/IMF funding and allow the country to avoid bankruptcy.

The Greek Prime Minister, Antonis Samaras, spoke of putting a smile back on Greek faces. There are many reasons to be cautious, however.
  • Greece is heading for its sixth year of recession
  • the latest measures, which will see salaries and pensions cut, will only weaken the economy further - if the past is a guide
  • the governing coalition is weak and fraying
  • implementation will be difficult. One MP last night called on the people to "disobey the measures". The strikes and protests will continue
  • the country's debt levels are unsustainable. Debt is expected to reach 190% of GDP next year. The target agreed by the IMF - 120% by 2020 - is out of reach
  • Greece will almost certainly need some kind of refinancing and that will test the German taxpayers once more.
Yet again time is being bought. One former Greek minister told me that the country was surviving on Angela Merkel's instinctive caution. She fears - particularly in a German election year - the uncertainty of Greece leaving the euro.

So the country that has seen its economy shrink by 23% remains on life support.


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