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Greece begrudgingly cedes sovereignty in exchange for bailout funds

The conditions the European Union set for Greece in exchange for a second bailout represent a very unusual amount of outside control and oversight of a sovereign country. 

By Staff writer / February 22, 2012

Greece's Finance Minister Evangelos Venizelos (l.) and Greece's Prime Minister Lucas Papademos (r.) hold a joint news conference after a Eurogroup meeting in Brussels February 21. Eurozone finance ministers struck a deal early on Tuesday for a second bailout program for Greece that will involve financing of 130 billion euros ($172 billion) and aims to cut Greece's debts to 121 percent of GDP by 2020, EU officials said.

Yves Herman/Reuters

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Paris

The $172 billion Greek bailout package hammered out in Brussels Tuesday averts a looming Greek default and, its architects hope, will ward off dangerous financial consequences for neighbors. 

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The sheer size of the bailout and a promised debt write-off of roughly 100 billion euros ($132 billion) represents a more favorable outcome than Greek officials expected. But the bailout comes with rigorous budget cuts demanded by northern European states and other requirements that represent an unprecedented amount of European Union control over a sovereign member.

"We have been learning for years how to share sovereignty in Europe," says Loukas Tsoukalis of the University of Athens and head of the think tank Eliamep, which deals with European and foreign policy. "With the crisis, we are all being asked to take some difficult steps further. It is uncharted territory. If you are a country on the verge of default, such as Greece, sovereignty and economic survival may create awkward tradeoffs." 

The terms are similar to conditions the International Monetary Fund imposed in the past on countries accepting loans, seen as a means of forcing economic reform. However, unlike those countries, Greece as part of a currency union cannot devalue its currency -- something that helped set the stage for renewed economic growth in previous bailout recipients.

Spending cuts

The Greek government that took over last fall says it is committed to meeting the bailout conditions.

With a deadline to repay 14.5 billion euros in March, Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos described the bailout agreement, reached after 13 hours of overnight negotiations that ended Tuesday morning, as historic, allowing Greece to avoid “a nightmare scenario.”

Yet with strikes planned in Athens today and public opinion on spending cuts ranging from resignation to fury it's unclear whether the Balkan state can deliver on its promises and restore the kind of economic growth needed to meet its budget targets.

"There's a serious contradiction among the people," says Charalambous Tsardanidis, director of International Economic Relations in Athens. "Greeks accept and insist on staying in the eurozone. They don't want a return to the drachma. All polls show this. But with the same majority, we don't see the austerity programs as an answer. After all the austerity, we still don't see an answer. We need to see development, jobs, building highways -- but that's not what the bailout deal is concerned with."

Greek unemployment is 20 percent, citizens have lost a quarter of their income in the past four years, and removed an estimated 60 billion euros from local banks, fearing their collapse. Yesterday Mr. Venizelos pled with the population to return their savings to Greek banks.

Antonis Samaras of the center-right New Democracy party and a leading contender for prime minister in upcoming April elections, said the debt reduction targets – to 120.5 percent of GDP by 2020 from 160 percent last year – could only be met with stimulus, not austerity. "Without the rebound and growth of the economy ... not even the immediate fiscal targets can be met, nor can the debt become sustainable in the long-term," Mr. Samasas said. 

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