NEW YORK – The European Union approved the disbursement of its last $17 billion tranche of bailout funding on Saturday, putting Greece’s debt crisis at bay – for now. With the last part of the $156 billion bailout package in place, the struggling nation will be able to keep functioning for a little while longer.
The disbursement, which will be made by July 15, follows the Greek parliament’s approval of new austerity measures. This latest piece is the fifth tranche of a bailout that was approved by members of the European Union last year.
“The Greek authorities provided a strong commitment to adhere to the agreed fiscal adjustment path, and to the growth-enhancing structural reform agenda, which are essential components of our strategy to restore fiscal sustainability and safeguard financial stability,” ministers said in a statement Saturday.
European officials will now work on a second proposed bailout. The bailout is a highly contentious subject in Greece. As the Greek parliament voted in favour of the funding on June 28, thousands of protesters descended on Athens and clashed with riot police. Tear gas choked the streets as protesters and police pounded each other with clubs and firebombs.
However, the bailout won’t take care of the nation’s long-term budget problems, according to Mark Blyth, an economics professor at Brown University in Providence, R.I. “This is simply giving them more breathing space, while they’re kicking the can down the road,” Blyth said, referring to the bailout. “They need to have enough money to cover the primary fiscal debt, and for keeping the lights on at the hospitals and military bases.
Once they’ve got that, they’re able to default without shutting down the country.” Blyth believes that a Greek default is inevitable. “Ultimately, there’s no way the Greeks can pay back what they’ve borrowed,” he said. The debt-ridden nation has “heavy near-term financing requirements,” according to S&P, with about $135 billion in government debt maturing between now and the end of 2013.
An additional $82 billion is set to mature in 2014. Still, the rest of Europe does not want Greece to default, because it would rupture the bond market and undermine the European banking system so severely that the repercussions could be felt on Wall Street. The French banking association and the German Finance Ministry, as well as German banks, have offered proposals to keep the Greeks from defaulting on $152 billion worth in bonds.
These proposals offer different variations on the same theme: rolling over Greek debt. As explained by Barclays (BCS), one of the options is to roll the debt into a 30-year bond, with at least 70% backed by private sector investors. For the Greeks, there is one part of their future that is crystal clear: more austerity.
In order to qualify for the final tranche of the bailout, the Greek Parliament had to agree to a new raft of austerity measures, in addition to the ones that were imposed on the Greek people last year. This is why people were rioting in the streets of Athens.
Since 2010, the Greeks have faced a myriad of austerity measures including pension cuts, a boost to the sales tax, excise taxes on fuel, cigarettes, alcohol and luxury goods, more stringent eligibility for disability benefits, and a hike in the retirement age to 65 from as low as 61.
On June 29 and 30, the Greek Parliament approved a new raft of austerity measures that included reducing the pay of public workers, increasing the attrition of public jobs and ramping up taxpayer compliance. (credits: CNN)