Socialist Worker

Bailouts and cuts plague Eurozone

by Panos Garganos
Issue No. 2268

The so-called “second Greek bailout” is up in the air. Negotiations between the Greek government and representatives of the International Monetary Fund (IMF), the EU and the European Central Bank (ECB) have been suspended.

The official explanation is that the Greeks need more time to prepare a draft for next year’s budget. But press reports and unofficial statements agree that the government cannot meet the stiff conditions set by the “Troika”.

It took just over a year—from May 2010 to July 2011—for our rulers to admit that the first bailout had failed.

An EU summit in July set out the terms for a second intervention to stabilise the spiralling debt. Less than two months later the new plan is stuck and the implications reach way beyond Greece.

One immediate problem is the deepening recession. Greece was meant to be heading for an upturn by now, after three consecutive years of a shrinking economy. Instead, the latest estimate is a drop of 5 percent in GDP in 2011 and slightly less next year.

The cuts were supposed to make the economy more competitive and restore growth. Instead they have had the opposite effect.

Government revenues are lagging behind targets, and government expenditure is higher—mainly because Greece has to pay more interest on bank loans.

The budget deficit is at 8.6 percent of GDP and that is considered unacceptable by the Troika.

It demands extra cuts and privatisations within the next three months. Otherwise it may refuse to pay the sixth installment of agreed new loans that Greece needs to meet its debt obligations.


The pressure on George Papandreou’s government to launch a new round of attacks on the working class is massive. A potential default could not come at a worse moment for the eurozone.

The EU and ECB authorities also have to deal with the prospect of Italy joining Ireland, Portugal and Greece on the list of states needing a bailout.

Italy’s public debt now approaches 2 trillion euros—more than double that of all the periphery countries put together.

On top of that, the IMF estimates that the European banking system needs to be strengthened to the tune of 200 billion euros. This is due to the problems caused by the slide of the world economy towards a new recession.

The European authorities contest this estimate, but a Greek default would force banks to wipe out billions of bonds off their books.

EU governments are divided over how to respond. But some are demanding Greece provides extra guarantees for any new loans.

Despite all these pressures, it is very hard both economically and politically for Papandreou to deliver a new round of cuts and privatisations.

Economically, selling off state companies would not raise the kind of money expected by the Troika. The stock exchange in Athens is now at its lowest point in 20 years.

And the political reasons are even stronger. August is a traditionally quiet month in Greece as it is the peak of the holiday season.

The education minister thought this would be a good moment to push through a “reform” bill.

She was wrong and has instead angered staff and students in the universities and provoked a surprise wave of college occupations—even though the new academic term does not start until October. There are currently hundreds of university departments occupied against the changes.

There were two general strikes in June, one for 24 hours and a second one for 48 hours.

This was alongside fierce clashes between the police and demonstrators occupying the Syntagma Square in Athens when parliament voted on the terms imposed by the IMF and the EU.

The idea that the government may now revise these terms for the worse is literally revolting—not just for students and young people, but across the Greek working class.

Panos Garganos is the editor of Workers’ Solidarity, Socialist Worker’s sister paper in Greece

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Article information

Tue 6 Sep 2011, 18:56 BST
Issue No. 2268
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