Among the least favorable signs coming out of Athens is the pause in International Monetary Fund-European Union (IMF-EU)
In the IMF-EU negotiations, Greece’s German taskmaster, Chancellor Angela Merkel, is insisting that Greece fully comply with its original commitments under its IMF-EU program before any further money is released. In particular, the Germans are insisting that Greece credibly commit itself to cutting public spending by as much as 5.5 percent of GDP in 2013–2014 as a means to restore Greece’s battered reputation with respect to its seriousness about implementing the IMF-EU program. And the Germans are doing so despite the already very depressed state of the Greek economy and the likelihood that further budget austerity will only exacerbate and prolong Greece’s economic
Greece’s weak coalition government is having great difficulty agreeing on how to cut public spending by the amount being demanded.It is hardly encouraging that Greece’s weak coalition government is having great difficulty agreeing on how to cut public spending by the amount being demanded. And this is even before the government has to go through the difficult process of obtaining parliamentary approval for such cuts. At issue are the massive reductions in public employment that such cuts would entail. These
It is also problematic that there is every indication that Greece’s economy is now collapsing at an accelerating rate. Standard and Poor’s Ratings Services recently projected that Greece’s economy would decline by a staggering 10–11 percent in 2012–2013. Another concern is that the latest Greek unemployment figures show overall Greek unemployment exceeds 23 percent, while youth unemployment stands at 54 percent.
Further complicating matters is the likely stance of Syriza, Greece’s far-left opposition party. Against the backdrop of a Greek economy in shambles, Syriza is sure to mobilize street opposition to further austerity measures in the run-up to any parliamentary vote on additional public spending cuts. In drumming up support for such opposition, Syriza would almost certainly make the case that the Greek government is now going back on its election pledge that it would renegotiate the terms of its IMF-EU arrangement to ease the austerity policies being applied to the country.
It is possible that President Obama could be lucky and have the Greek situation hold together until after the election. However, the rapidly deteriorating political and economic developments in Greece suggest that the odds against that occurring are fast increasing.
Desmond Lachman is a resident scholar at the .