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June 19, 2012

Greece Seeking New Terms for EU Bailout

by Mil Arcega

Rival Greek party leaders are still locked in talks to form a new coalition government - one able to address the country's crippling debt.  Despite gaining a slightly larger share of the electorate, Greece's pro-bailout parties did not win enough votes in Sunday's election to form a governing majority.  But even as Greek politicians attempt to deal with the second inconclusive election in six weeks, there are growing calls to renegotiate the tough bailout conditions imposed by the European Union.

Greek politicians are confident a power-sharing agreement is close - with discussions now shifting toward steps needed to stabilize the country's economy.  

Greek lawmaker Olga Kefalogianni says there is general consensus among the various parties that the conditions for Greece's $168 billion rescue may have been too harsh.

"Our partners must understand that they need to give us some breathing space, that reforms are necessary, but we can't work with this austerity package, which actually is keeping us in a vicious cycle of recession," said Kefalogianni.

Greece is now in the fifth year of a recession - a situation some say is tantamount to a full blown depression.  

Economist Yanis Varoufakis says it's clear that austerity measures demanded by the IMF and the European Union in exchange for two bailouts have hindered, rather than helped the Greek economy.  

"The current bailout terms and conditions have already been bypassed by economic reality, so every prediction and every hypothesis on which they were founded, those conditions have completely gone to the dogs [deteriorated]," said Varoufakis.

Despite a series of expensive bailouts to four eurozone countries, borrowing costs have risen to unsustainable levels in high debt countries such as Italy and Spain.  

Varoufakis says, without a unified and growth-centered approach to the region's debt crisis, a Greek exit from the eurozone may be just the beginning.

"Unless we do those things, there will be no eurozone to speak of," he said.

Privately, some EU officials have expressed similar concerns, one tweeting anonymously that "it would be stupid" to enforce existing bailout terms.
 
But investment manager Justin Urquhart Stewart says Greece's new government will have limited room to negotiate.

"The Greek government has to be seen to be carrying out re-negotiations of the deal, it cannot not do so," he said. 'However, there's only a limited amount they can really do.  Are they going to be able to adjust any of the core elements of the bailout package?  The answer is no."

Much will depend on Germany.  The bloc's biggest economy has already opened up the possibility of extending some payment deadlines, but at the G-2- Summit in Mexico, Chancellor Angela Merkel reiterated her belief that the basic conditions of the deal -- essentially a sharp and timely reduction of Greece's debt to GDP ratio - is not negotiable.