Last week Greece was literally given the proverbial Greek gift in its cap-in-hand bail out request from the country’s “lords” in the Eurozone and by extension their friends in the multilateral aids market. Greece’s financial crisis arguably came to a peak when, June 30, the European country announced it could not pay its Special Drawing Rights of 1.2 billion (about EUR 1.5 billion) due that day to the IMF. This default, rather unheard of, made Greece the first European country to default on its debt obligation to the IMF.
Athens’ default with the IMF came in the wake of the expiration of the country’s second Eurozone bailout package, the so-called 2012 Framework which was rather a failure with the European Central Bank shutting its doors to Greece. But this first time default with the IMF portended a bad omen for the whole of Europe and indeed the world. In a move that suggested nipping in the bud what may degenerate into a cruising bandwagon, the Eurozone finance ministers had rallied for a new bailout window.
Under the new scheme, Greece is to receive about EUR 86 billion ($96 billion) in new money. Of this amount between EUR 40 billion – EUR 50 billion is to be provided by her Eurozone sovereign entities in the first instance, comprising 18 other counties in the zone. This is with the thinking that IMF will make a pronouncement, pledging its own contribution. Greece has already made an application to the IMF which, in any case, is a prerequisite for the country to qualify for the Eurozone therapy. Of this amount EUR 25 billion is to be channeled toward recapitalization of Greek banks while the rest will go into public spending, most of which related to providing catalysts to broaden the private sector economy, under certain strict conditions.
In return for the gesture, Greece is to give its pound of flesh. This will come in the form of far-reaching reforms covering tax hikes and public sector expenditure cuts of which pension cuts are easily the most visible. There will in fact be a robust government programme on spending cuts to be supervised by a concert of the lending institutions.
In addition valuable government assets are to be privatized in a scheme to be supervised by the lenders and which is expected to rake in EUR 50 billion over the period of pendency of the bailout facility. Of the EUR 50 billion, 50% is to be channeled toward repaying the bailout funds for banks. Half of the remaining 50% will be used for designated investments. The other half will be channeled toward a progressive downward adjustment of the debt-to-GDP ratio which is will only stand in good health at the rate of 60%.
However it stands to reason whether, with the present exposure of the European country, the programme is realistic. For instance, the debt-to- GDP ratio as it is now in real terms is about 170% and IMF fears it may reach the 200% mark as soon as in the next two years. Besides, going by the current debt stock vis-à-vis GDP, the international lending do-gooders must grant a sizable chunk of old debt stuck write-offs in addition to long moratoria and amortizations to be able to post the DSA (debt sustainability analysis) results envisioned for Greece’s balance sheets.
Beyond this, it seems that the provisions made for reawakening the private sector may not be adequate to command the activity that would meet desired results. For example the new programme expects to raise about EUR 35 billion under different EU programmes within the next three years to assist in creating new investments, particularly in SME’s. This is to be assisted with an initial EUR 1 billion pre-financing arrangement by the European Commission toward new investment in this direction.
As lofty as the offer is, there is the socio-cultural environment that must be conducive to make the programme workable. Firstly, the lender condition of very close monitoring will essentially conflict with an awkward work culture of long work hours, yet very low productivity. Essentially it is left to be seen how this present work culture will reconcile with the “new SME culture” about to be introduced under the present bailout scheme. Further, issues will not be helped by the high corruption index of Greece currently standing at 43. Besides it is unclear if economic statistics that have so far been falsified by the Greek authorities and largely responsible for the failure of bailout programmes since 2010, would not post worse-than-expected figures in the immediate years ahead.
Generally, it appears that perhaps due to the experience with the last two bailout schemes, Greece is to experience a type of structural adjustment M&E programme from lenders never seen before in the history of sovereign borrowing. This may be expected to pose issues of national pride and de facto sovereignty, with its attendant consequences. For a country that has indeed singly bequeathed most in terms of legacies to the world, this is a huge irony.
Greece gave the world the Olympics sports festival. It also played prominent roles in fashioning the Christian culture as prescribed in the New Testament. The alphabet got its name from the first two Greek letters namely “alpha” and “beta”. Ancient Greece used the Dikasteria; a pleb of sorts that judged cases, long before people started wearing clothes in America. The Dikasteria morphed into modern day’s jury legal system being used by advanced jurisprudences. Greece bequeathed to the world classic mathematicians like Euclid and scientists like Archimedes. Fathers of philosophy like Plato and Aristotle were Greek. The dynamism of modern day architecture largely owes its birth to the Greek Parthenon.
Greece’s most famous gift to the world is no doubt democracy. On the flip side however, the European country is “notorious” for its Trojan horse gift – a gift with dire consequences. As Greece receives the bailout package from the international financial do-gooders, the country may just be literally set to ride its legendry Trojan horse.
Chuba Keshi
