AN outline agreement has finally been reached between the Greek government and the rest of the leaders within the Eurozone. However, anybody believing that Greece is saved and everybody else in the Eurozone is happy should think again.
The €86bn deal, although it provides the country with the necessary funding for the next three years, was not good news for the Greeks. The main points of the bailout plan included a €12bn loan until August to repay the IMF and the ECB, a €86bn loan to recapitalise banks, the creation of a trust fund of Greek assets worth of €50bn and a further €35bn EU funding to boost growth and create new jobs.
In return, the Greek government has to commit to heavy austerity measures including further pension cuts and increased taxation, mainly through VAT increases.
They also have to implement deep structural reforms to reshape the pension system, liberalise the labour market and increase state revenues by reducing corruption and tax evasion. And all these will have to be done under the strict supervision of the ECB, the European Commission and the IMF.
As the Greek government has been iterating and the IMF has confirmed, the main problem with the bailout plan is the non-viability of the debt itself. Despite this, a debt write-off has been a “taboo” topic amongst other European nations. At best they are only willing to discuss an expansion of the repayment period.
Another major problem with the deal is that it doesn’t deliver what Greece really needs, enough funding to bring about significant growth and development. This is only provided by a fraction of the bailout deal, as most of the funds simply serve old debts. There is a serious danger of Greece being trapped in a vicious debt-repaying circle.
There are also more than just monetary issues at stake. Many Greeks feel angry and humiliated about a deal that enhances austerity and leads Greece to further depression, something which is echoed by the hard left of the governing party Syriza. This disapproval was expressed during the voting, when even though the majority of the parliament voted for the programme a large number of Syriza MPs voted against. With such conflict within Syriza, the danger of the country going into another election soon is very real. This would further destabilise the already suffering Greek economy.
So it seems Greece has a mountain to climb after a deal that didn’t rise to the expectations. But if the Greeks were the losers, surely other European nations must have won? Unfortunately not, as there doesn’t seem to be any winners.
If on one side there are the angry Greeks, on the other there are Europeans who are losing their tolerance and understanding of the Greek problem. Many feel they are the victims of Greek corruption, incapability and elusiveness, with many of their leaders in government finding it difficult to justify a third bailout.
As if all these problems were not enough, an even bigger issue is arising. A financial and debt related crisis is turning into a pan-European, socio-political one. A division between some of the EU countries is becoming apparent. Extreme political voices either from the left, such as Syriza in Greece and Podemos in Spain, or the right, Ukip in the UK and the National Front in France, are increasing. If this trend continues the very existence of the EU will increasingly take centre stage.
So, what does the future hold for Greece and the EU and where do we go from here? As you might have guessed by now, there is no easy answer. Without a move towards further economic and political European integration, the Euro project would lose perspective and start crumbling from the inside. But further integration is far from attainable as things stands.
The Eurozone desperately needs a leader to guide them through to the next stage of evolution, with Germany seeming like the only country able to take that role. However, leadership does not mean more muscle flexing and dogmatic devotion to rules and regulations.
If the likes of Angela Merkel are to lead the EU out of this mess, narrow interests must be put aside and there must be flexibility, realism and vision. There is a long hard road ahead.
Dr Konstantinos Lagos is a senior lecturer in economics at Sheffield Hallam University and a Greek national.