Merkel’s Greek headache is far from over
Feb 10, 2012
Print this article
Greece missed a third deadline this week to agree reforms to secure its second eurozone bail-out. German chancellor Angela Merkel and French president Nicolas Sarkozy want Greece’s prime minister, Lucas Papademos, to sign off another package of cuts before they will agree a €130bn aid package. There were demonstrations by protestors in Athens on Tuesday as part of a 24-hour general strike. But Merkel insists that Greece exiting the eurozone is “not an issue”.
What the commentators said
There is a “new and ugly tone to the debate about Greece’s finances”, writes Hamish McRae in The Independent. Germany’s patience is “exhausted” and the Greeks are “behaving like naughty boys”. But Papademos is “working extremely hard” to meet “extreme demands”.
The European Union and the International Monetary Fund want cuts equivalent to another 1.5% of GDP from a country in its “fifth year of recession”. Yannis Panagopoulous, president of Greece’s biggest private-sector union, calls the negotiations “raw cynical blackmail against a whole people”. Why are France and Germany taking this risk?
For two reasons. Firstly, a disorderly Greek default could lead to “Portugal, Spain and eventually Italy [leaving] the eurozone”. Secondly, Merkel openly supports Sarkozy in the French presidential elections.
Sarkozy’s rival, François Hollande, could reverse his austerity measures. He could initiate policies that are “exactly the reverse” of those thrust upon the weaker eurozone states. “Greece has to be screwed down now, not just because of the financial deadline… but… because of the political deadline of the French elections.”
Markets believe that if Greeks accept the terms, “all will be well”, says Stephen Lewis at Monument Securities. “This is far from being the case”. Greek governments have agreed such conditions before without it bringing “closure”. Papademos can’t enforce the “unpopular measures”. What’s emerging from the proposed deal suggests it “will not be economically viable” and, because there are no measures to halt the Greek economy’s contraction, “it will probably unravel within weeks”.
If Greek elections were held today, Papademos would be “hard-pressed to form a parliamentary majority” anyway, say Costas Paris and Terence Roth in The Wall Street Journal. “Far-left splinter groups’” share of the vote could soon outstrip that of the mainstream parties. But the “weighty majority” of Greeks dread the “unknown consequences of leaving the euro”, which could help the main parties form a new government, if they find a new junior partner.
Related articles
-
By Matthew Lynn, May 25, 2012
-
By Bill Bonner, May 24, 2012
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.