‘Grexit’ averted, but tough times ahead

Only time will tell whether the tough terms laid down by the European lenders, primarily the Germans led by Chancellor Angela Merkel, are a better alternative to a “Grexit” (exit of Greece from the Euro). For now, the Greek people have to accept the tough terms to be eligible for an immediate 86-billion-euro ($95.29 billion) bailout by the lenders to help the Greek banks, on the verge of collapse, to open. But first, by Wednesday, the Greek Parliament has to give a vote of approval to the implementation of the terms laid down for a fresh round of European funding of the programme that will supposedly help the shattered Greek economy get back on track.

The Europeans insisted on the Greek Parliament voting for these tough measures as they say Greece suffers from a huge “trust deficit” and that they need some assurance that the Greeks are sincere about implementation. The package, even more severe than the one rejected by the firm “Oxi (No)” by the Greek people in a referendum a week earlier, seems to serve the interests of the lenders more than that of the Greeks. It includes an unprecedented demand of placing Greek state assets worth 50 billion euros, including the recapitalised banks that will be beyond government reach, to be sold off primarily to re-pay the debt. Of this, about 12.5 billion euros of the proceeds would go towards investment in Greece. Simultaneously, the eurozone finance ministers would discuss measures to bridge the funding gap till the actual three-year bailout amount is given by the European lenders.

The other six measures, besides privatisation, include spending cuts, tax hikes that would bring the untaxed rich into the tax net, and pension reforms. It will be a challenge for Greek Prime Minister Alexis Tsipras to get all the legislators on his side.

The Greek people cannot be blamed for questioning the austerity measures. They feel five years of the austerity programme did not get them any relief, only more debts. It is hoped that Mr Tsipras gets an assurance from the 18 European partners that the austerity measures are the right panacea. This will be the third bailout in five years. The Greeks have got loans of $268 billion so far and their debt is $350 billion, or 180 per cent of their GDP. Some Greeks want the country to go back to the original currency, the drachma. Greece exports suffered after the introduction of the euro as it made them uncompetitive. We have to wait till Wednesday to see whether the whole “Oxi” drama was much ado about nothing.