Germany approves third Greek bailout. Crisis over … for a couple of months
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Version 0 of 1. Now that Germany’s parliament has approved Greece’s third bailout, it is tempting to think that the crisis is over. Tempting, but wrong. The threat of imminent financial disaster has been averted, but only by kicking the can a bit further down the road until October. At that point Greece will have had its first review to see whether it is meeting the terms of the latest agreement, and the International Monetary Fund will have to decide whether it wants to be involved in the financial rescue package. Both are problematic. The financial conditions Greece has to meet have been eased as a result of the virtual shutdown of its economy in July, but they have not been eased enough. Greece is expected to run a surplus on its budget, once debt interest payments are excluded, of 0.5% of GDP in 2016, 1.75% in 2017 and 3.5% every year thereafter. These are fantasy projections based on unrealistic assumptions. They will already be out of date by the time the first review is conducted. Greece has been set up to fail its review, at which point some of the hardline European countries will cut up rough. They will say that the next tranche of bailout cash should be withheld and that all talk of debt relief should be stopped until Greece gets back on track. The IMF, however, will not give its imprimatur to the deal unless Greece’s debt burden is reduced sufficiently to make it sustainable. Christine Lagarde, the fund’s managing director, has already told Greece’s European creditors they will need to be far more generous. If anything, that position is likely to harden as it become clear that Greece’s economic and financial woes are far more serious than currently thought. The crisis should be coming back to the boil nicely by the time the IMF holds its annual meeting in Lima in early October. |