New Greece Finance Minister Evangelos Venizelos tried to renegotiate more favorable bailout terms at the last minute with the IMF and EU. He supposedly believed that a less onerous package would be easier to sell to his parliament and voters. It seems that Greece has a deal to receive more financing anyway and Evangelos Venizelos was attacked by EU finance ministers for his attempts.
But, the renegotiation of the Greek package has already begun just as the EU and IMF did in Ireland in February. Those efforts have not had success for the Irish yet, but the ruling party has resisted calls for lower corporate tax rates which means it has rejected a core request from its rescuers.
The trend among all nations that have been bailed out and those that will be in the future is likely to be the same. Austerity measures are agreed upon. The IMF and EU take these pledges at face value. Politicians in the rescued nations renege on these promises to preserve their popularity. GDP in these nations falter because of recession or lack of enforcement of new taxes and levies. The bailed out countries return to the IMF and EU with explanations of why their best laid plans failed.
At the core of the concerns about the Greek bailout is the worry that Greece cannot enforce tax laws and that its recession is so deep that austerity will make its financial situation more precarious. Bailouts buy time, but not economic improvement and their terms may actually be regressive.
Credit default swaps on Greek debt indicate that the markets believe that Greece will default within the next five years. Its financial straits will only be part of the reason. The other is that the renegotiation process have begun. The Germans, EU financial ministers, and IMF will all be defied. Another round of talks will begin to force the Greeks into compliance with their obligations. The country’s politicians will take the path to reelection which is the one which also leads to repudiation.
Douglas A. McIntyre