(VOVworld) Eurozone finance ministers met in Brussels on Monday to consider a deal on the second bailout for Greece worth 130 billion USD and a major write down of privately held Greek sovereign debt. There turns out to be no easy remedy for this public debt, which has become a dire threat.

Greek PM Lucas Papademos (second right) at a eurozone finance ministers' meeting on February 20th. (Photo: BCC)

To sa)ve Greece’s economy, the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) have forced Greece to adopt several austerity measures. The Greek government on Sunday approved the austerity package requested by the EU and the IMF. Earlier on February 17, Athens submitted to the three international creditors a supplementary cost-cutting plan worth 325 million euros. The plan included cuts of 100 million euros to health care and national defense, 45 million euros in wage cuts, 20 to 30 million euros cut from pension insurance and reduced subsidies for extended families and other government spending. The government promised to press private creditors like banks and insurance companies to write down state debts gradually by 21%, 50% and 70%. These are really drastic measures to reduce Greek public debt from the current 160% of GDP to 120% by 2020. While the loans will help to relieve Greece’s debt, they will do little to restore the economy. Greece spent 110 billion euros of the first rescue package on interest payments and 2 thirds of the new 130 billion euro package will be spent for the same purpose- to stave off a default on March 20. The situation in Greece is a vicious circle. The more austerity measures the country applies, the worse its economy gets. The austerity measures reduce state budget deficits and public debts, but don’t help the economy, because Athens has to pay an interest rate of 8.8%, higher than its real economic growth rates. This explains why Greece’s GDP has declined for four consecutive years, losing 6% last year and, according to IMF forecasts, is likely to lose another 4% this year.

“Recession, unemployment and budget deficit” are the challenges that Greece is facing. The austerity measures and the conditions attached to the billion-euro rescue package by European financial institutions and the IMF have angered many Greeks. Since the EC, ECB and IMF got involved, overall wages in the country have fallen 14.3%, 9% for public employees and 33% in the hotel and restaurant sector. A German economist says further wage reductions will have serious political consequences. Trade unions held demonstrations last Saturday in Athens and other cities to protest the government’s belt tightening measures. Thousands of people gathered in front of the Parliament House to protest wage and pension cuts, which have made their lives miserable. Some are suggesting Greece should withdraw from the Eurozone to save the zone from collapse and protect the EU.

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