As finance ministers from the Euro zone meet in Brussels on Monday to discuss if Greece will receive its next huge bailout -- valued at $170-billion -- there are some major concerns regarding the rescue package and the efficacy of the Athens government in imposing much-needed austerity.
*How much of the bailout will be contributed by the public and private sectors?
The new rescue plan envisions writing off about 100 billion euros of debt, with private lenders compelled to get a 70 percent reduction of what they are owed. Although these creditors will ultimately receive cash and new bonds which will mature in 30 years, it is not a happy solution for anyone.
The head of the Euro group Jean-Claude Juncker ominously said prior to the Brussels parley: “There are still questions as to how much the public sector can contribute and how we will handle the issue of private creditors in detail.”
Wolfgang Schaeuble, the German finance minister who has already irritated Greek officials with his apparently condescending remarks about the Athens government, warned: “We still need clarity on the involvement of private creditors about a program to make sure that Greece will not exceed a debt level of 120 percent of GDP by the year 2020. There is still some work to do and we have to make sure that the program is implemented.”
*If the bailout is agreed to, how much influence and presence will the troika (IMF, ECB, European Commission) have in Athens in order to monitor how the rescue package is spent and to what extent the Greek parliament adheres to the new austerity program that it approved the prior weekend?
In fact, the government of the Netherlands is demanding a “permanent presence” of the troika in Athens post-bailout to make sure they abide by its terms.
Austrian finance minister Maria Fekter said: “There will be an intensive debate about the monitoring and how we can see whether Greece can implement what we have agreed. If Greece does not implement the measures we have asked for then it won't be able to return to growth. The most important [thing] is for Greece to grow, that the administration becomes more efficient and leaner, that jobs are created. Only then Greece can recover.”
Luc Frieden, the finance minister of Luxembourg, noted: “It's important for us that we introduce monitoring... a system of supervision which ensures that, together with the Greeks, this program is implemented after the elections.”
The harshest words probably came from Dutch finance minister Jan Kees de Jager, who declared: “We can afford to say to no until Greece has met all the demands. It's up to Greece and the Troika to say whether this has been done and for us it is a ‘no’ until Greece has done so. If Greece lives up to all its obligations, then The Netherlands will also do its part. When you look at the derailments in Greece which have happened several times now, it's probably necessary that there is some kind of permanent presence of the Troika in Athens -- not every three months but on a permanent basis.”
*How can Greece grow its economy while its government (and the European creditors) demand the imposition of waves and waves of austerity?
Greece has suffered five consecutive years of economic contraction. The country now has a debt-to-GDP ratio of more than 160 percent. The Troika wants that figure to drop to 120 percent by 2020 -- perhaps an impossible feat given the weak economic outlook.
In the fourth quarter of 2011, GDP shrank by 7 percent on an annualized basis. Most economists are forecasting another significant contraction in 2012.
Richard Parker, professor of public policy at Harvard University and a former adviser to the Greek government, told the Chicago Tribune: Because there is not a growth plan -- austerity is not a growth plan -- Greece faces a long, dark path.”
*How will an already overburdened Greek public react to new austerity and increased monitoring by Western European officials?
Greek has been scarred by strikes, protests and massive demonstrations over the past year and a half, frequently called by powerful leftist labor unions. The recently-passed austerity package, which calls for 3.3 billion euros in cuts, including thousands of job losses, sparked violent clashes in Athens and other cities, including acts of arson.
Unemployment is at nearly 21 percent and it is estimated that one half of young people in Greece (under the age of 25) are jobless.
*Can Athens politicians be trusted to carry out austerity after the upcoming elections and beyond?
Greek political leaders of both the conservative and socialist ideology have pledge in writing to impose terms of the bailout and apply necessary austerity measures.
The New Democracy (conservative) leader Antonis Samaras, who may become the next Prime Minister after elections are held probably in April, voted for the austerity bill and even expelled party members who went against it. However, Samaras has repeatedly criticized various spending cuts proposed by parliament, including wage and pension reductions.
Samaras has also ominously warned that if he is elected leader of the country, he will seek to renegotiate terms of the bailout, raising more doubts in Europe.
The Socialist leader George Papandreou also has promised to abide by the bailout terms, beyond the upcoming elections.
He wrote to top Troika officials: We recognize that achieving the… objectives and key policies will take political resolve and determined policy implementation over many years. In the event of being elected Greece's next government, we will remain fully committed to the effective implementation of the program's objectives and targets.
However, Papandreou also called for some modifications to the bailout in order to help restore economic growth and soothe the markets.
European decisions that will continue to enhance the effectiveness of the wider firewall, calm the international bond markets, and oversee the European and global financial system in areas such as rating agencies, will be crucial for the effectiveness of all countries in similar programs, Papandreou said.
Already dozens of Greek MPs (from all parties) have resigned in protest of the austerity, suggesting there is really no solid unified political will behind the bailouts.