Sixth austerity package (Greece)

Sixth austerity package - February 2012 measures
Coat of arms of Greece
Hellenic Republic
Approval of Plans of Financial Facilitation between the European Financial Stability. Facility (E.F.S.F.), the Greek Republic and the Bank of Greece, the Plan of Memorandum of Understanding between the Greek Republic, the European Commission and the Bank of Greece and other urgent measures.
(Law 4046/2012)
Territorial extent Greece
Enacted by Hellenic Parliament
Date passed 12 February 2012 (For: 199; Against: 74; 5 Abstentions)
Introduced by Government of Greece
Status: In force

The Sixth austerity package is part of the countermeasures of the Greek government to counter the Greek government-debt crisis. It was approved by the Hellenic Parliament in February 2012.

History

Negotiations about a fifth austerity package (October 2011 – January 2012)

In October 2011, Greek Prime Minister George Papandreou got parliamentary backing for further austerity measures. These new measures would allow Greece to get an extra instalment of international loans, a second bailout package, that would prevent a sovereign default and they would make possible the partial write-off of Greek debt, the so-called private sector involvement (PSI).[1] As a result of this backing, Greece was granted by the EU a quid pro quo of further austerity for a €100bn loan and a 50% debt reduction through PSI.[2]

Within a week, Papandreou, backed unanimously by his cabinet, announced a referendum on the deal, sending shockwaves through the financial markets.[3][4] This resulted in Germany's chancellor Angela Merkel and France's prime minister Nicolas Sarkozy issuing an ultimatum declaring that, unless the referendum resulted in the approval of the new measures, they would withhold an overdue €6bn loan payment to Athens, money that Greece needed by mid-December.[3][5] Papandreou cancelled the referendum the next day after the New Democracy Party, leaders of the opposition, agreed to back the agreement.[3]

On 10 November Papandreou resigned as prime minister following an agreement with the New Democracy party and the Popular Orthodox Rally to appoint a new prime minister of common acceptance promulgate laws associated with implementing the new measures that were agreed with the EU.[6] The person chosen for this task was non-MP technocrat Lucas Papademos, former Governor of the Bank of Greece and former Vice-President of the European Central Bank; his appointment was criticised by left-wing parties and branded "unconstitutional".[7] By contrast, three separate polls taken when Papademos assumed office revealed that around 75% of Greeks thought that temporary, emergency technocratic rule was "positive".[7]

The EU insisted that whichever government was elected after Papademos in 2012, it must be bound to honour the agreed upon EU-IMF austerity strategy.[8] It thus demanded that Greek party-political leaders sign legally binding letters to this effect, as well as to any additional measures that might be required in future as part of the second rescue-package.[8] Papademos argued in favour of signing, even in the face of opposition from major pro-austerity factions in his government.[8] Such letters would bind Greek governments to austerity and structural adjustment through to 2020.[8] It was announced that the general election to replace Papademos' technocratic administration was to be delayed until April, or even May 2012 because more time was needed to finalise plans for austerity and structural adjustment, as well as to complete negotiations over the Greek debt reduction.[9][10]

Finalising the deal on the 50% PSI debt write-off, required by the troika as a condition for extending more aid, proved difficult in early 2012, with hedge funds being the most difficult to persuade.[11][12][13][14] In an interview with The New York Times, Papademos said that if his country did not receive unanimous agreement from its bondholders to voluntarily write down €100bn of Greek's €340bn debt, he would consider legislating to force bondholder losses, and that if things went well, Greeks could expect "an end to austerity" in 2013.[15] Others believed that even the proposed 50% would not be enough to prevent a sovereign default.[15][16][17]

Approval by the Hellenic Parliament (February 2012)

In February 2012, facing sovereign default, Greece was in need of more funds from the IMF and EU by 20 March 2012, and was negotiating over the next lending package, worth €130 billion. On 10 February 2012, the Greek cabinet approved the draft bill of a new austerity plan, which has been calculated to improve the 2012 budget deficit with €3.3 billion (and a further €10 billion improvement scheduled for 2013 and 2014). The austerity plan includes:[18][19]

The latest round of austerity measures means Greece will likely face at least another year of recession, presaging another round of business closures, before the economy will start to grow again,[20] and foreign observers were shocked by both the cold-heartedness of German negotiators and a perceived lack of integrity on Greece's behalf because of Greece not honoring its commitments.[21]

Showing position of disagreement, the transport minister Makis Voridis from the Popular Orthodox Rally party, along with five deputy ministers from various ministries, decided to resign.[22] On 11 February, caretaker prime minister Lucas Papademos warned of "social explosion and chaos" if the parliament would not approve the deal the next day. Speaking to members of Parliament before their vote, Papademos stated that if the majority of them chose to vote against the austerity measures there would be several onerous consequences, including that the government would not be able to pay the salaries of its employees. On 13 February, the Greek Parliament subsequently approved this latest round of austerity measures by a vote of 199 to 74. During the period of parliamentary debate, massive protests were witnessed in Athens that left stores looted and burned and more than 120 people injured. The riot was one of the worst since 2010.[23][24]

Despite being one of the ruling parties, the Popular Orthodox Rally voted against the plan and withdrew itself from the government. Forty-three MPs from the other two ruling parties (social democratic PASOK and conservative New Democracy) also voted against the plan and were immediately expelled from their parties. This reduced the combined power of these two parties from 236 to 193 seats, which is still majority for the 300-seat parliament of Greece.[25] The vote was a major precondition for the EU and IMF to jointly release the funds, which are supposed to cover all financial needs in 2012 and 2013, with the hope that Greece can start lending again at the private capital markets in 2014.[26]

The determination of the leaders of Greek ruling parties to implement the new austerity package was however doubted. For example, Antonis Samaras (leader of New Democracy) talked about renegotiating the deal, despite voting for the austerity package. Because of such uncertainty, the Eurozone finance ministers demanded Greek main politicians to sign a written assurance for their continued support to implement the austerity package, both before and after any elections.[27]

After passing the new austerity package on 13 February, there still remained four other hurdles for Greece, to receive the new €130 billion bailout loan:[28]

As of 19 February, Greece had managed to pass the first two hurdles. The debt restructure agreement and the result of the debt sustainability report was however still pending. Some of the newest calculations suggested that Greece would now need an enhanced bailout at €136 billion, and they were still likely to exceed the 120% debt level in 2020. It is now up to the Troika to decide if this can be accepted under the previous terms. Alternatively, the slightly worse outlook for the debt numbers can also be counterfeited, by some further debt restructuring and/or demands for additional austerity measures.[29]

See also

References

  1. ↑ Maria Petrakis; Natalie Weeks (21 October 2011). "Papandreou Prevails in Greek Austerity Vote as One Dies". Businessweek. Retrieved 29 December 2011.
  2. ↑ "Greek crisis: Papandreou promises referendum on EU deal". BBC News. 1 November 2011. Retrieved 29 December 2011.
  3. 1 2 3 Rachel Donadio; Niki Kitsantonis (3 November 2011). "Greek Leader Calls Off Referendum on Bailout Plan". The New York Times. Retrieved 29 December 2011.
  4. ↑ "Greek cabinet backs George Papandreou's referendum plan". BBC News. 2 November 2011. Retrieved 29 December 2011.
  5. ↑ "Papandreou calls off Greek referendum". UPI. 3 November 2011. Retrieved 29 December 2011.
  6. ↑ Helena Smith (10 November 2011). "Lucas Papademos to lead Greece's interim coalition government". The Guardian (London). Retrieved 29 December 2011.
  7. 1 2 Leigh Phillips (11 November 2011). "ECB man to rule Greece for 15 weeks". EUobserver. Retrieved 29 December 2011.
  8. 1 2 3 4 Leigh Phillips (21 November 2011). "Future Greek governments must be bound to austerity strategy". EUobserver. Retrieved 29 December 2011.
  9. ↑ Leigh Phillips (28 December 2011). "Greek elections pushed back to April". EUobserver. Retrieved 29 December 2011.
  10. ↑ Stelios Bouras; Nektaria Stamouli (26 March 2012). "Greek Election Date Narrowed Down". The Wall Street Journal. Retrieved 27 March 2012.
  11. ↑ Peter Spiegel; James Mackintosh; Dimitris Kontogiannis (21 December 2011). "Fund threatens to sue over Greek bond losses". The Financial Times. Retrieved 22 January 2012.
  12. ↑ Phillip Inman; Helena Smith (17 January 2012). "Greek protesters take to Athens streets as creditors arrive for debt talks". The Guardian (London). Retrieved 19 January 2012.
  13. ↑ Helena Smith (22 January 2012). "Greek debt talks on knife-edge amid growing IMF pressure on bondholders". The Guardian (London). Retrieved 22 January 2012.
  14. ↑ Peter Spiegel; Kerin Hope (22 January 2012). "Greek bondholders draw line in the sand". The Financial Times. Retrieved 22 January 2012. Charles Dallara, managing director of the Institute of International Finance, said in an interview that he remained "hopeful and quite confident" the two sides could reach a deal that would prevent a full-scale Greek default when a €14.4bn bond comes due on 20 March. . . . Dallara said the IIF's position tabled with Greek authorities on Friday night—believed to include a loss of 65–70 per cent on current Greek bonds' long-term value—was as far as his side was likely to go.
  15. 1 2 Rachel Donadio (17 January 2012). "Greek Premier Says Creditors May Be Forced to Take Losses". The New York Times. Retrieved 22 January 2012. There is a growing sense in Europe that a Greek default cannot be avoided, if not now then perhaps in March, when a bond comes due that the country cannot pay without more financing from the troika.
  16. ↑ Peter Coy; Matthew Philips (19 January 2012). "A Greek Default: It's a-Comin'". Businessweek. Retrieved 22 January 2012.
  17. ↑ Editorial (20 January 2012). "Greek Debt Agreement Falls Far Short of What's Needed to Save Euro". Bloomberg. Retrieved 22 January 2012.
  18. ↑ "Der ganze Staat soll neu gegründet werden". Sueddeutsche. 13 February 2012. Retrieved 13 February 2012.
  19. ↑ "Greece MPs clear way for $170bn bailout". ABC News. 13 February 2012. Retrieved 13 February 2012.
  20. ↑ Kerin Hope (17 February 2012). "Grim effects of austerity show on Greek streets". The Financial Times. Retrieved 19 February 2012. At least I'm not starving, there are bakeries that give me something, and I can get leftover souvlaki [kebab] at a fast-food shop late at night", [one homeless Greek] says. "But there are many more of us now, so how long will that last?
  21. ↑ Phillip Inman (4 March 2012). "Germany has run out of patience". Economics blog (London: guardian.co.uk). Retrieved 5 March 2012.
  22. ↑ "Greek government approves debt deal". The Sydney Morning Herald. 11 February 2012.
  23. ↑ "Clashes erupt as Greek Parliament debates austerity measures". CNN. 12 February 2012. Retrieved 12 February 2012.
  24. ↑ "Buildings set ablaze as Greek MPs debate austerity plan". BBC News. 12 February 2012. Retrieved 12 February 2012.
  25. ↑ "Greece passes new austerity deal amid rioting". CBC News. 12 February 2012. Retrieved 13 February 2012.
  26. ↑ "Q&A: Greek debt crisis". BBC News. 9 February 2012. Retrieved 11 February 2012.
  27. ↑ Chaffin, Joshua (14 February 2012). "Eurozone divisions threaten Greece aid". FT.com. Retrieved 2012-05-16.
  28. ↑ Emmott, Robin (13 February 2012). "Factbox – Next steps on path to Greek bailout". Reuters.
  29. ↑ "Eurozone seeks central banks' help in Greek bail-out". Financial Times. 19 February 2012. Retrieved 20 February 2012.
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