The news out of Greece today is that the Sunday agreement of the Greek government to the $4.4 billion austerity package will enable the government to get the next round of bailout money. This is supposed to solve the Greek crisis for now.
It will not solve it for long.
I spoke yesterday with a Greek woman who had been married to my wife’s uncle until his death. She still runs a charitable ministry in Greece and the region. She visits there regularly. She told me that the Greek Communist Party will win in April’s election if the austerity package passes.
No one in the English-speaking media is talking about this possibility. There is discussion of Greek labor unions that are demonstrating, some of which are Communist. But no one thinks that the government could fall into the Communist Party’s hands.
This standard account is that the Greeks, meaning the voters, are unwilling to leave the eurozone. Typical is this Time story.
There was very little chance that the Greek parliament would reject the euro zone’s dictates. The alternative was default and a probable exit from the monetary union, something the Greeks are still not willing to do, as my colleague Joanna Kakissis reported the other day. Caretaker Prime Minister Lucas Papademos said that more austerity was “the only alternative to a catastrophic default … that would force Greece, sooner or later, to leave the euro.”
The reporters speak of “the Greeks,” but this means “today’s government.” It does not mean swing voters who are in a position to throw out the existing government in April.
The article’s author is not optimistic. Yet he does not discuss the possibility that the Communists could win the coming election. So, things could get a lot worse than he admits.
First of all, does anyone really, honestly believe the Greek debt crisis is over? Yes, this bailout is better than the first one, mainly because it includes some necessary debt reduction. Yet that reduction is not nearly enough to make the country’s sovereign debt sustainable. At best, it is expected to bring Greece’s debt down from 160% of its GDP today to 120% by the end of the decade. (The restructuring, furthermore, is far from a sure thing.)
He sees that tax hikes will retard growth.
Greece’s GDP likely shrunk by some 6% in 2011 – and a recovery is nowhere in sight. That’s why Greece’s debt relative to GDP continues to rise, even after two years of austerity. My guess is that we’ll be revisiting the Greek debt crisis again in a few months, once it becomes apparent that this latest bailout isn’t fixing the country’s problems any better than the first one did.
There is a European-wide recession. This is forcing up unemployment. It is now at 10.4%, which is the highest in over a decade. Deficits will climb.
In short, the crisis in Europe has only just begun.