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Why Greece will likely pass austerity measures, despite protests

Greece is reluctant to pass wildly unpopular austerity measures that have brought thousands of angry protesters to the streets, but it has little choice.

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Government cutbacks and increased taxes aren't pain-free for the economy either, which shrank by 4.5 percent last year and will contract further as a result of austerity measures. But the cuts will benefit the "wasteful and inefficient" Greek government in the long run, Kirkegaard says.

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Claims by the political opposition that further austerity measures are impossible and that they will renegotiate the IMF and EU loans if they are elected is "just a cynical political calculation," he says. "Austerity cannot be the only way to balance the books … (but) additional austerity can and has to happen."

Privatizing Europe's least private state

The less-talked-about requirement from international lenders is privatization of state assets, companies, and real estate – crucial if Greece is to avoid slipping back into economic doldrums years down the line. It has more government assets than any other country in the Organization for Economic Cooperation and Development (OECD) and it has never privatized state holdings on a large scale, Kirkegaard says.

 But just because privatization is uncharted territory, doesn't mean it can't happen.

"The Greek government, in the last one and a half years, has done many things not done before," he says, citing major cuts to its social welfare system. "There's a first time for a lot of necessary new policies ... in the new political environment and crisis environment."

The political will is there now because the government knows it has no other choice, he says. It helps that while the political opposition has vocally opposed austerity measures, it's on board with privatization.

It will take years for the process to generate much-needed revenue, Lombardi says, but it is the most important thing to European finance ministers who make the call on the country's loans.

At this point, all Greece needs to do to receive its July loan is prove that it has made a commitment to privatization by passing laws that put the process in motion.

'The nuclear bomb'

The consequences if Greece defaulted on its bonds are so severe that the country is unlikely to let it happen, both Lombardi and Kirkegaard say.

"There will be far reaching consequences that no one dares to explore in full," Lombardi says. "It is the nuclear bomb that everyone is trying to avoid."

Greece is much further from this outcome than the bickering among Greek politicians and European finance ministers makes it appear.

"There is a lot of brinkmanship and political posturing involved here," says Kirkegaard. "It is only when you go right down to the wire … that the political will to make these tough decisions is there."


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