Europe’s proposal for a new bailout of Greece would pump $170 billion into the country in the next three years and slice the value of the Greek bonds held by private investors by more than half.
But even if all goes well, the country would still labor under a mountain of debt that it may not be able to afford. If Greece misses its economic growth targets by even a small amount, this new bailout would run aground, international debt experts and analysts said.
A lowering of Greece’s debt load
On Tuesday, European finance ministers canceled a Brussels meeting scheduled for Wednesday to discuss the proposed rescue plan amid continuing doubts about whether Greek officials will meet the strict conditions for receiving new international loans. The Greek Parliament took an important step in that direction last weekend by approving new austerity measures, sparking violent protests. European leaders are squeezing the Greek government to make further progress in carrying out the steps,
Amid growing concern about the country’s plight, new data published by the Greek statistical agency on Tuesday showed that the economy, reeling from government spending cuts and other austerity measures, shrunk by about 6.8 percent last year. That rate of contraction outpaced estimates made by the International Monetary Fund just a few weeks ago.
The new program depends heavily on Greece returning to economic growth. Yet with a potential Greek default on its debts only weeks away, European and IMF leaders are expected to march ahead with the new loans regardless.
The alternatives — basically letting Greece default and possibly leave the euro zone — could be too risky until Europe builds a financial firewall strong enough to protect other countries such as Italy from fallout. Euro-region leaders have been working for more than two years toward erecting such a defense.
“As long as the IMF, the European Commission, the Germans and the European Central Bank feel that Greece cannot be cut loose, they are desperately trying to make the numbers add up” to justify the new program, said Sony Kapoor, managing director of the Re-Define consulting firm. Compared with further lending to Greece, “the alternative at this point, for all the major actors, including Greece, looks even worse.”
In a sign of the doubts about the new program, Luxembourg Finance Minister Luc Frieden said in Washington on Monday that the next round of international support for Greece may be the last.
“We should do our best to keep the euro zone with all its members, but the key lies with Greece,” Frieden said in an address at the Atlantic Council. If the strict conditions of the next international loans are not met, “they exclude themselves from the euro zone. . . . That might to some extent let Greece have a new start.”
The new rescue program — which has been the subject of wrangling among European officials, Greek leaders and the IMF — involves three pillars: massive new international loans, the imposition of steep losses on private bondholders and renewed efforts by Greek officials to reinvigorate the local economy.
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