Although a pending deal will allow Greece to get its next batch of bailout money, the Greek debt crisis is as much of a time bomb now as it ever was.
Private bondholders tentatively agreed yesterday (Thursday) to take a 70% "haircut," or a reduction in the value of the Greek debt they hold, in exchange for more Greek austerity measures.
If the Greek parliament approves the measures, which include lowering the minimum wage by 22%, cutting 150,000 public sector jobs and further reductions in pensions, Greece will get the $130 billion in bailout money it must have to avoid default on March 20.
Trouble is, none of that solves the real problem, which is Greece's shrinking ability to pay back future debt.
"Greece will be able to make the payment and immediate default will be avoided," Jurgen Odenius, chief economist for Prudential Fixed Income, told USA Today. "But the situation still won't be sustainable."
Previous austerity measures designed to lower budget deficits have hammered the Greek economy. Unemployment is 20.9%. The country's gross domestic product (GDP) has declined for five straight years and has been negative for the past three. Last year the Greek economy contracted 5.7%. Economists expect Greek GDP to shrink another 5% or so this year.
As the Greek economy gets smaller, balancing the budget gets harder. Greece almost certainly will need to keep borrowing money for years to come.
And because Greece's credit is shot, it will have a tough time selling bonds at rates low enough to avoid sinking deeper into the debt hole.
Of course, even the current deal has yet to be approved. The Greek parliament is expected to vote on it by Sunday, giving the opposition time to make its case.
Greek workers, already chafing from previous austerity plans, angrily denounced the deal. "We absolutely reject this plan ... it will impoverish society and bankrupt the economy," officials from General Confederation of Greek Workers said in a statement.
The Greek police union warned it would refuse to "fight against our brothers" in a letter to the troika of the European Union, the International Monetary Fund and the European Central Bank that will decide whether to grant Greece the bailout money it needs.
"We warn you that as legal representatives of the Greek police, we will issue arrest warrants for a series of legal violations ... such as blackmail, covert abolition or erosion of democracy and national sovereignty," the letter said.
Greek politicians seemed resigned to their fate, knowing they have little choice but to vote for austerity measures that will enrage the public while further damaging the economy and failing to solve the larger debt crisis.
"If we see the future of our country within euro zone, within Europe, we should do what we have to do for the program to be approved," Finance Minister Evangelos Venizelossaid. "Unfortunately, we have to choose between sacrifices and even bigger sacrifices."
The troika held back its approval of the deal pending the Greek parliamentary vote. Europe's leaders fear a new Greek government may try to soften the austerity plan.
"We cannot live with a system where promises are made and repeated and repeated and where the implementation measures are, from time-to-time, too weak," said Eurogroup president Jean-Claude Juncker. "So we are insisting on a real, true implementation."
For all the fuss, the latest deal only makes it seem the Greek debt crisis is moving forward.
"What they are actually discussing is nowhere near enough," Simon Tilford, chief economist at the Centre for European Reform in London told USA Today. "Six months down the line, there will have to be another big haircut, and again and again − it will take years."
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