Bailout gives creditors unprecedented say in Greece
Greece’s international creditors will have an unprecedented say over the country’s government to make sure Athens sticks to the terms of its huge third bailout. But will it be enough to ensure its success?
The monitoring of the 85-billioneuro (US$95-billion) rescue by the creditors — the EU, European Central Bank and International Monetary Fund — will touch everyday life in Greece, from a visit to the doctor’s to the purchase of a daily loaf of bread.
But analysts say all this oversight, designed to make sure Athens sticks to the deal, could even turn out to be counterproductive, stoking the popular resentment against the creditors that put left-wing Prime Minister Alexis Tsipras in office in January.
Finance ministers from the 19-country eurozone were due to meet in Brussels on Friday to give their verdict on the bailout deal, after Tsipras managed to get the package through parliament despite significant opposition within his own radical-left party Syriza.
Analysts say the creditors too face their own political problems, especially in Germany where many voters resent handing over more money to what they see as a lost cause in Greece.
“This current deal does not guarantee that Greece will continue to stay in the euro area,” said analyst Daniela Schwarzer with the German Marshall Fund of the United States.
“It is an important step which confirms all parties’ political commitment at this point in time. But there can be political, economic and financial obstacles,” Schwarzer told AFP.
With Greece’s two previous bail- outs in 2010 and 2012, the creditors demanded a whole series of painful tax hikes, spending cuts and economic reforms in return for a combined 240 billion euros. That did not work. As the programs faltered and Greece slumped into a deep six-year recession, the creditors blamed successive governments for failing to meet their commitments.
Athens in turn blamed the creditors for asking for too much, too fast, saying austerity did more harm than good as public anger at their intrusive oversight grew sharply.
The new bailout is even more farreaching, with a long list of dos and donts as the creditors aim to leave no wriggle room for Athens.
They go far beyond economic management to include extensive reforms of the country’s health and social welfare systems, and modernizing and de-politicizing the public administration.
Seemingly small details of daily life will be affected by the new rules, including the fact that the creditors want to force bakeries to set bread prices by the kilo rather than the loaf, and extend the expiry dates of pasteurized milk in the supermarkets.
The government will also have to bring the education system into line with “best EU practices,” the standard set for many of Athens’ new obligations, which include cleaning up the banks, a new privatization drive and opening closed professions.
Many of these commitments must be put into law before cash can be handed over. The creditors will conduct regular reviews, the first due in October, to ensure the reforms are being fully implemented.
Analysts says this close oversight raises other questions about the fea- sibility of the bailout — especially in terms of whether its rollout is seen as democratic.
“The problem of democratic legitimacy should not be underestimated, neither for Greece nor for the lenders,” Schwarzer said.
“This is true in Greece as a recipient country which is subject to ever tighter controls and where critics have long observed a loss of sovereignty,” she said.
“For the lenders, likewise problems of legitimacy arise, as it is getting harder and harder to explain to taxpayers that they should continue to provide liquidity aid to a country which has been identified as insolvent,” Schwarzer said.
Frederic Allemand, research coordinator at the European studies CVCE think-tank in Luxembourg, said any government faces problems in winning support for unpopular policies, especially if those are demanded by outsiders.
“It is always very difficult for a country, and even more so in a bailout case, to accept conditions laid down by others,” Allemand told AFP.
“Among the Greek people, there is great uncertainty about the future and about the necessity or not of adopting these measures given that early elections are very likely,” he said.
The bottom line, however, may be that Greece has no choice.
“There wasn’t really very much choice for the Greeks,” said Vicky Pryce, chief economic advisor with the Centre for Economics and Business Research in London.
“The bailout is quite harsh, in terms of its conditions, but it is going to keep Greece in the euro, at least for longer than otherwise would be the case,” Pryce said.
“It is a necessary evil.”