by Dimitris Sotiropoulos, The Conversation
The Greek government was forced into accepting a third bailout under very difficult circumstances on July 13. The dramatic euro summit of July 12 lasted 17 hours before a new bailout package of €86 billion was agreed by eurozone prime ministers. Conditional on a new recessionary policy mix, negotiations are now underway to determine the specifics.
While the details of the new plan are undecided, so far we know that it will last three years. A higher than anticipated recession might further increase Greece's financing needs rendering the above figure inadequate.
But regardless of the specifics, since the recessionary policy mix will remain the same, there is nothing to suggest that the third bailout will have a different fate to its predecessors. The first bailout program in 2010 failed and was replaced by a second one in 2012 and now a third, similar one. All demanded unreasonable high fiscal consolidation without any significant debt relief. After the new agreement recession is very likely to deepen again.
Economic woes
The Greek economy faces yet another recessionary year with depressed consumption, anaemic investment and an extremely high unemployment rate. On top of that, the ongoing humanitarian crisis is deepening. The third bailout will exacerbate this.
The tremendous fiscal consolidation implemented by Greece and a badly designed private debt haircut in the beginning of 2012 that undermined the banking sector under the terms of its previous two bailouts, has led so far to economic losses equal to a quarter of GDP and pushed unemployment to levels over 25%. No other country has suffered similar losses in peacetime.
Greece has suffered a humanitarian crisis. EPA/Alkis Konstantinidis
Another mark of the recessionary policies being a failure is Greece's inability to meet the economic targets predicted by its creditors. IMF forecasts of nominal GDP overestimated the actual numbers by 25% in 2013 and 2014. The same will probably happen in 2015. Financing Greece's debt in the same old way is expected to further boost sovereign debt to the level of 200% of GDP. This figure is, in its own right, a guarantee that it will take years before Greece regains access to markets (without a drastic intervention by the ECB).
