Recipe for a desaster

The European Union has set up a new instrument in order to put more pressure on Greece: the phone conference call. The so-called troika (EU, ECB, IMF) used this brand new tool several times last week. And it worked: The government in Athens agreed to a new series of budget cuts, promising to sack some ten thousand public workers and to close 117 state-owned corporations. With these fresh cuts, the troika agreed to go back to Athens and to consider paying the next tranche (8 billion Euros) from the rescue package.

The trouble is that the new austerity programme looks like a recipe for desaster. The troika and Greece appear to be in a lose-lose-situation: If prime iminster Papandreou sticks to the new cuts, he will never be reelected; as a politician, he will be a dead man. If he does not put the new austerity programme into work, Greece will be bancrupt – in three or four weeks the gouvernment will not be able to pay its cicil servants any .  

On the other hand, if the troika softens the conditions for a rescue, there will be a populist backlash in the rich Euro countries.In Finland for example, the „true Fins“ would block any new aid to Greece. And even in Germany, the liberal party FDP could threaten the whole rescue package. The liberal leader Rösler is alreay publicly thinking of an „orderly bancrupty“ in Greece, thus putting the pressure on chancelor Merkel and her government. 

This week on Thursday, the German parliament will vote on the next aid plan for Greece and the Euro zone. If the FDP and some dissidents in Merkels CDU vote against, the liberal-conservative German coalition could break up. If they agree, it will be up to Papandreou to put his government and his country at serious risk…

(This is a short English version of my most-read post this week. The original post – in German – can be found here.)