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Thursday 22 August 2019

Greek debt write-down is good news for Ireland

In the end, Greek prime minister George Papandreou comfortably survived the parliamentary vote of confidence with MPs voting 155 to 143 in his favour, a much more comfortable margin than many analysts had been expecting.

But the vote of confidence was in many respects the easy part. Greece uses the list system when electing its MPs, and fixers of the ruling PASOK party were able to threaten any defectors who voted against the government with a lower, much lower, place on the list come the next Greek general election.

This would of course make it difficult if not impossible for the MPs concerned to be re-elected.



austerity

Unfortunately for the Papandreou government, last night's victory was in many respects the easy part. It gets much more difficult after this.

On Tuesday next, Greek MPs must vote in favour of the savage new austerity measures demanded by the EU and IMF in return for the latest €12bn tranche of bail-out money due to Greece.

This features a further €28bn of spending cuts over the next four years and the sale of €50bn of state assets with everything that isn't nailed down in Greece now up for sale.

While most analysts had always reckoned that the Papandreou government would survive the confidence vote, they aren't quite so sure about next Tuesday's vote.

However, with the EU threatening to withhold the €12bn if Greek MPs vote against, a move that would trigger an immediate default by Greece on its €340bn debt mountain, surely the Greek parliament will in the end vote in favour of the package, if only through gritted teeth?

It might not be a good idea to bet on it. With Greece having already endured over a year of savage austerity, with public sector pay and social welfare payments having been cut by 20pc and the unemployment rate having soared to 16pc, there is enormous resentment that the EU and the IMF are back demanding even more cuts and privatisations.

No-one would be too surprised if the Greek parliament voted to reject the latest austerity package.

If this happens, would the EU deliver on its threat to withhold the €12bn?

If it did, not alone would the EU set in train the default it so desperately wants to avoid, but this would almost certainly be followed by a major banking crisis in France and Germany, whose banks have lent heavily to Greece, and the break-up of the eurozone as Greece and other peripheral countries exited the single currency.



bluff

This almost certainly means that the threat to withhold the €12bn is bluff. If the Greeks were to call the EU's bluff then the EU would almost certainly suffer far more damage than Greece. Mutually assured destruction. However, even if the Greek parliament votes in favour of the new austerity package next Tuesday, will the Greek people be prepared to accept it? Or will the Papandreou government be literally chased from office by an angry populace?

Given the level of popular anger in Greece it seems unlikely that public opinion in that country will wear the latest package, no matter how parliament votes.

What this means is that a Greek default is now very much a question of when rather than if. Greece can at most repay about half of the €340bn it owes.

Will the EU deliver on its mad threat, which would trigger a disorderly default with disastrous consequences for the whole eurozone, or will it eventually acquiesce to an orderly restructuring?

In practice, despite its fighting talk the EU will have no option but to cut a deal with the Greeks on their debts. Which is very, very good news for Ireland.

When the liabilities of the banks are factored in, we too owe somewhere in excess of €300bn, a sum far beyond our capacity to repay.

We too will have to write down our debts.

What is sauce for the Greek goose is also sauce for the Irish gander.

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