The European economies are suffering. Britain, an important and powerful member of the EU has formally opted out of the union. Many countries are witnessing rise of rightist powers. Add another Greece bailout to this mix and you will get an explosive situation in the Eurozone. The troubled Greeks with more than 23 percent unemployment rate and a debauched economy seek another bailout. If the EU goes ahead with this, it would burden Germany the most and create ripples of dissatisfaction in the bloc.
The July Time Bomb
The clock is ticking for Greece to pay 7.5 billion euros in debts. With merely 2 more months of time, the country may need additional help from its Eurozone creditors. The European Commission has hinted at a possible deal related to a bailout for Greece in the coming weeks. Eurozone finance ministers will be meeting this Friday, before which a staff level agreement for the bailout could be reached. Note that the 86-billion-euro bailout program will end in 2018. If Greece needs more loans, it would have to work on its labor market policies and pensions, both of which may not be comfortable steps for the government.
Athens Should Bite the Bitter Pill
Alexis Tsipras’ socialist inclinations will not be too helpful for the country while negotiating with the Eurozone. Though Athens was successfully able to make amendments, further talks would demand a fresh perspective and an ability to take the bitter pill. Greece is expected to reach its fiscal targets in the current year and will hopefully continue doing so in 2018 as well. Even if the Tsipras collects enough funds to pay the debts in July, it would become impossible for him to struggle out of a depression zone that comes further along the line.
He will have no other choice but to increase income tax and propose pension cuts after the 2018 bailout program is over. The fiscal policy will have to be tightened further. However, it is not Greece’s money that he can use to pay off the debts fully. If he does, the local suppliers will be left unpaid. The country’s private sector would take another beating from the government. Greece is in a catch-22 situation but it looks like it would have no other option but to cut pensions and get fresh loans from Germany and other EU nations.
Calling pension cuts a bitter pill is an understatement. We must know that many pensioners already have low purchasing power in Greece. With 23 percent unemployment, some pensioners could even be supporting their families solely. A pension cut would mean a depressed economy. How long can Greece survive on ‘bitter pills’ and a battered economy?