The International Monetary Fund, the European Commission and the European Central Bank gave their approval for the next tranche of the bailout funds on Tuesday 11th October in an effort to halt the financial crisis in Greece. The troika of bodies announced that the next 8 billion euros (7bn pounds) would likely be available in November. Countries in the Eurozone are expected to provide 5.8 billion euros of the bailout cash while the IMF will contribute 2.2 billion euros.
This will be the sixth tranche of the loan to Greece since Prime Minister Papandreou first reached an agreement with the IMF and EU in May 2010. The original deal in 2010 secured Greece 95 billion pounds (110bn euros) in exchange for austerity cuts that aimed to cut 30 billion euros over three years. The austerity plan included tax increases and further cuts in pensions and public service pay. The plan riled the public sector workers to hold a 48-hour nationwide strike in which three people were killed.
A second rescue package was announced on July 21st 2011 that involved an additional 109 billion euros of government money and an estimated 50 billion euros worth of contribution from private sector bondholders by the middle of 2014. As part of the package, banks and private investors agreed to swap Greek government bonds for ones that had easier repayment terms. Pressures from France and Germany led to further austerity measures, which resulted in the cutting of pensions by 20 percent and the extending of real estate tax.
The July 21st agreement was widely criticized as too soft on the banks, and a EU official recently stated that it had become too expensive for Greece and the rest of Europe. Therefore, certain elements of the agreement are to be renegotiated. Much of the new plan remains obscure but it is to be structured in a way to avoid a credit event, in which a country defaults on its debts and bondholders are forced to take up losses. This view is supported by the European Commission and by France, but not by Germany and several other countries that are pushing for more radical measures.
Strikes are emerging once again as the government decides on new spending cuts in order to receive more funding from the IMF and EU. A general strike is planned for the 19th of October; civil servants, teachers and public sector workers walked out of jobs on the 11th to protest against further cuts. The garbage collectors of Athens went to strike and left the city strewn with trash, illustrating their discontent. Strikes and unrest are expected to continue as the parliament prepares to vote on Papandreou’s plans to cut wages and pensions even further.
According to the troika’s team of inspectors, Greece could not fulfil the fiscal target for 2011 because of an additional drop in the GDP and because of the poor implementation of the austerity measures. Thus, the government has no choice but to implement the austerity cuts despite the popular discontent. It is expected that 2012’s deficit target of 14.9 billion euros will be met if the cuts are followed through. Greece is not on a fast track to recovery and is not expected to show any growth until 2013.