Greece officially enters post-bailout era, but don't start celebrating just yet

The country still has to implement the austerity demands of its former creditors, even though it officially entered its post-bailout era last Tuesday.

Dialekti Angeli
Dialekti Angeli NewsMavens, Greece
officially enters post-bailout era, but don't start celebrating just yet - NewsMavens
Alexis Tsipras. Wikicommons

Why this story matters:

"Today a new day is dawning in our country, a historic day. The austerity, recession and social desertification are finally over. Our country regains its right to shape its own future", Greek Prime Minister, Alexis Tsipras said in a televized address to the nation from the iconic island of Ithaca.

The location brings back in mind the year 2010, when then-Prime Minister George Papandreou addressed the Greek people from the island of Kastellorizo, informing them that the country was effectively bankrupt and had to get financial help.

In return for the loans taken, successive governments had to enact a series of austerity measures in order to right the country’s finances. The economy compressed by a quarter, incomes were cut, taxes were imposed and unemployment rates swelled.

Even though Greece now left its third financial rescue program, more than eight years after its first eurozone bailout, Athens remains shackled to its European creditors.

So before popping open the champagne, let’s have a reality check.

The country will no longer have to pass regular checks from creditors to get money, but austerity demands still stand. Pre-agreed pension cuts and tax hikes await the Greeks in 2019 and 2020. Greece will also have to maintain a budget surplus target of 3.5 percent of its economic output for the next five years, as well as a budget surplus of 2.2 percent until 2060.

"Commitments have to be respected", said Pierre Moscovici, the European Commission’s chief of economic policy, delivering a heavy dose of reality the other day.

It is true that Greece has a 24 billion cash-buffer which will suffice till the summer of 2020. After that, the country has to stand on its own feet, taking into consideration the demands of the investors in international bond markets. That is to say that any deviation on the budget front could change the interest rates they charge for Greece to borrow, up to an unsustainable point.

A high price paid for a "fiscal freedom" in name only.

Details from the story:

  • The island of Ithaca is linked to one of the legendary heroes from antiquity. It is the home of the mythical Mycenaean king Odysseus, whose troublesome 10-year travels are immortalized in Homer's "Odyssey".
  • As we have already pointed out, last June's debt-deal just extend the debt burden for future generations.
  • Athens will remain under surveillance from the EU and the IMF, starting in early September, to make sure that the government sticks to the pre-agreed reforms and austerity measures.
  • While Cyprus, Ireland, Portugal and Spain -- the other countries that successfully completed an EU bailout program -- are subject to two audits a year by the European Commission and the European Stability Mechanism, Greece will be under "enhanced surveillance", which means four visits a year from the monitoring team.

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