Easing Greece’s Austerity Squeeze And Its Future Implications

As Euro Group President Jean-Claude Juncker meets with Greek PM Antonis Samaras in Greece on Wednesday to discuss whether  Greece has done enough to receive its next 31.5bn-euro bailout payment scheduled for next month, the outcome that will be reached is expected to set the tone for how the Euro zone treats austerity reform measures and responds to struggling euro-member countries.

Greece is dependent on its second €130 billion-euro ($160 billion) rescue deal reached in March to give the debt ridden country the necessary cash to keep paying its salaries and other debts. 

Under the bailout terms, Athens is required to scrape up €11.5 billion in cost cutting measures worth 5.5 percent of GDP over the next two years which it has promised to repay its international creditors. 

Greece is required to honor its commitment of €11.5 billion to receive its next € 31.5 bailout payment.

However, Athens is now stuck having to secure an extra 2 billion in savings through spending cuts to attain the required targets under the EU/IMF bailout package and account for losses in tax revenues.

The majority of Greece’s austerity measures includes reductions in pensions, public sector wages, welfare benefits, defense, and health care. 

Some economists are concerned that as Greece’s recession deepens, there is a greater likelihood for social unrest and protests by groups aligned with Greece’s volatile labor unions.

The Greek government is currently working on a plan to dismiss up to 40,000 civil servants in the years ahead.

Greece has a poor record of missing deficit targets and implementing austerity measures.

Greek PM Antonis Samaras is expected this week to request that Greece’s austerity measures be spread out over four instead of two years.

He hopes to have a new package secured before he travels to Berlin at the end of this week.

French PresidentFrancois Hollande is expected in Berlin tomorrow for talks with Germany’s Chancellor Angela Merkel.

Over the weekend, German Finance Minister Wolfgang Schäuble expressed his skepticism of additional aid to Greece.

“We can’t put together yet another program,” he said adding that it was irresponsible to “throw money into a bottomless pit.”

If Greece is able to lighten its austerity reform program and receive a new aid package, then it leads to further questions about whether other euro member countries facing similar austerity measures will also seek to renegotiate the terms of its own bailout terms. 

Will other member nations like Ireland, Cyprus, and Portugal also seek to have their austerity programs renegotiated?

If the Euro area leaders placate Athens’ pleas for patience and leniency, the decision will establish a new precedent and shed some light about how strong of a line Euro leaders hold with austerity and how accommodating they are with struggling member countries.

 

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