Keep Watching Greece Because What's Going on There is Coming to America

Year After Greek Debt Rescue, Markets Unconvinced

April 23, 2011

AP – It's an anniversary few are celebrating. A year ago Saturday, with its faltering economy days away from bankruptcy, Greece ended months of speculation and requested bailout loans.

Prime Minister George Papandreou chose the remote island of Kastelorizo, and its tranquil seaside backdrop, to announce the "urgent national need to formally ask our partners to mobilize the support mechanism."

International solidarity, he said in a televised address, would "send a strong signal to markets that the European Union is not to be toyed with, and it will protect our common interests and our common currency."

Twelve months on, there's little indication that that signal has been received.

Greek bonds have been axed to junk status by the three major ratings agencies. And sky-high borrowing costs have roughly doubled, along with the price of insuring debt. Greece would currently have to pay out 15-percent interest on a 10-year bond, compared with the German benchmark of 3.27 percent.

At least 160,000 more people have lost their jobs since April 23, 2010, with government austerity accelerating layoffs and business failures. And the national debt is forecast to exceed the emergency level of 150 percent of gross domestic product in 2011.

"At the moment we have a very, very difficult situation which requires a rapid response and tough measures," economic analyst Vangelis Agapitos said. "Of course the markets also realize that there is political fatigue and political cowardice to fully take the tough measures that are necessary."

Despite daily government denials, 47 percent of Greeks now believe the country will have to restructure its debt, while just 24 percent think it won't be necessary, according to an opinion poll due to be published Sunday. The survey by the Alco research company for the weekly Proto Thema newspaper used data from 1,000 people interviewed April 15-19. No margin of error was quoted but it would normally be around 3 percentage points for a survey of that size.

Support for Papandreou's Socialists has sunk from 34.7 percent to 21.5 percent in the past 15 months, the poll found, though he still maintains a slim lead over rival conservatives.

After Papandreou's call for help from Kastelorizo, a rescue deal was put together in nine days, just ahead of a critical refinancing deadline. Eurozone countries and the International Monetary Fund agreed to lend Greece euro110 billion — equivalent to nearly half the country's annual output — through 2013.

In return for the bailout loans, Papandreou's Socialist government slashed euro14 billion off the budget deficit in 2010 using salary and pension cuts and a raft of unpopular measures aimed at reducing waste in the public sector and protective market rules.

His government has promised debt inspectors that it will start generating a primary surplus in 2012, but fiscal targets have begun slipping this year due to the ongoing recession. And the sharp rise in public discontent is in growing contrast to calls by Greece's central bank and analysts for bolder cost-cutting measures.

"The (national) debt is 150 percent of GDP and rising. Had it been half that amount, maybe these (austerity) measures would suffice," Agapitos said. "The number of measures is unprecedented. So in a way, Greece is proving that the effort is there. However, the expectations are much higher and keep rising, because of the mess that Greece is in."

Papandreou is unlikely to get much respite this Easter, with school and hospital closures planned this year and a massive privatization program prompting a general strike on May 11.

Many of his countrymen, however, are looking forward to a break from the national gloom this holiday weekend.

"I just can't watch the news anymore — it's so depressing," said window cleaner Stratis Dervendlis, who is planning a series of day-trips in and around Athens on his days off.

"The bad news is constant. It's like reminding someone in hospital that they're sick all the time. Instead, they should be giving us courage and telling us how we're going to get better."