To protect the $172 billion that international lenders will be channeling to Greece, European leaders said they would help the country only if it puts language in its constitution that requires it to make paying its debts a “priority.” The package directs the bailout money to be rolled into a special account and then passed out to Greece’s creditors, the cash shielded from the Greek government’s other financial needs. European officials also said they would station a permanent team of inspectors in Athens to make sure Greece was implementing far-reaching austerity measures.
“We have seen Greece has been derailing several times in the past years now. Without these special measures, we could not be sure whether or not Greece would implement” the rules, Dutch Finance Minister Jan Kees de Jager told reporters in Brussels on Tuesday. “Implementation risks are high in the case of Greece, higher than anywhere else.”
Despite the tough words from their partners, Greek leaders allowed themselves a brief respite Tuesday, after weeks of facing the specter of a default on March 20, when a $19 billion debt payment is due. A default could reverberate through world markets and could devastate Greece, where the unemployment rate is 21 percent and the economy shrank almost 7 percent last year.
“A nightmare scenario was avoided,” Greek Finance Minister Evangelos Venizelos told reporters in Athens on Tuesday, calling the deal “maybe the most important in Greece’s postwar history.”
There’s still more to be done in the coming weeks before the deal is final. Greece’s private creditors must write off about $141 billion in loans, and the German, Dutch and Finnish parliaments must agree to release money for the bailout.
And Greece will have to pass more austerity measures.
The IMF will probably contribute less money proportionally to the new bailout than for previous ones, German Finance Minister Wolfgang Schaeuble indicated Tuesday. The agency had proposed $17 billion in new funding plus $13 billion left over from the first bailout, although that would have to be approved by its board, Schaeuble said.
But even with the assistance, Greece’s economic situation is dire. The analysis done late last week by the so-called troika showed that even small failures to meet interim economic targets could cause Greece to fall far short of its 2020 goals, leaving the country mired in troubles and Europe potentially on the hook for more money.
Many Greeks who oppose the austerity measures question whether more cuts will help the country get back on its feet, especially because the loan itself has to be repaid.
“If somebody is in debt, has no job, has no house, you don’t give him a loan. You give him a job to pay off the loan,” said Vasso Papandreou, one of the founders of Greece’s post-dictatorship Socialist Party, who was thrown off party rolls last week in parliament when she voted against austerity measures.
She said that the special account for the bailout revealed the priorities of Europe’s leaders.
“What Europe is this when they ask that the first priority is to pay back money to banks?” she asked. “The Greek government should have room for maneuver to pay money back but also to take care of people in despair.”
Supporters of the separate bailout account said that Greece’s past record did little to instill confidence that measures being required would actually be implemented. They pointed to Greek opinion polls that suggest that politicians who support the current agreement will not have a majority in parliament after the April elections.
“It comes out of a fundamental reflection that there’s no trust between the euro zone and the Greek government,” said Jacob Kirkegaard, a fellow at the Peterson Institute for International Economics. “And it reduces the nuclear card that the Greek government has always had, which is that if you don’t pay us, we will default and all hell will break loose.”
But as time passed, the impact of a Greek default on the rest of Europe would ebb, Kirkegaard said, especially after a permanent bailout fund is operational in July to help guard against contagion from Greece’s problems. The separate account will serve as another buffer, he said.
The account is “about protecting Europe. It has nothing to do with protecting the Greek population,” he said.
Some in Greece worry that they still don’t know where their country is headed.
“Right now we’re on a cliff looking down,” said Maria Bintza, 53, who runs an Athens dry cleaning shop whose machines sit silently for lack of business. “Where will our future be after this?”