Eurozone heads to meet in Brussels to thrash out package details

After weeks of foot-dragging, mutual contradiction and confusion, a clear plan emerged on Sunday and members of the European Union agreed to a euro 110-billion package to stave off Greek bankruptcy.

The package has been decided upon jointly by the EU and the International Monetary Fund and the European body will be coughing up 80 billion of the 110 billion-deal, with the rest coming from the IMF.

Bilateral loans

For the first year, the Euro-zone will pay euro 30 billion in the form of bilateral loans, as a complement to financial assistance from the IMF. Under the plan Greece will take further austerity measures such as cutting pensions, bonuses, further extending the retirement age and slapping on additional levies to reduce its budget deficit by some euro 30 billion in order to bring it below 3 per cent in 2014.

“The problem is that this is only the tip of the iceberg and we are going to see much worse. Speculators are waiting in the wings for the Portuguese, the Italians, the Spaniards, and why not the French, to proffer the begging bowl. These states are in extreme fiscal difficulty and we have many hard years of austerity ahead of us. David Cameron may decry the Euro but Britain too is in a very poor way. The problem with Greece is that there is large-scale tax fraud. Their fiscal evasion is equivalent to 12 per cent of GDP whereas in France it is close to 3 per cent. I cannot see any government being able to streamline Greece's fiscal setup by 2014. Talking of bringing the Greek deficit to under 3 per cent by 2014 is a pipe dream, one that cannot be fulfilled,” Mr Langlet, the Editor of the French economic daily La Tribune told The Hindu.

Brussels meet

Eurozone heads of State and government will meet during an extraordinary summit in Brussels to thrash out the procedural details. “But under no circumstances will the European Council go back on this plan,” explained Eurogroup President Jean-Claude Junker. The monies for Greece will be unblocked before May 19, the date when the country has to meet major debt obligations. The loans are being extended by Greece's eurozone partners at a 5 per cent interest rate.

Germany, Europe's biggest and richest nation and the one least affected by the recession and financial crisis, has been the most reluctant to help out Greece. Angela Merkel faces a crucial regional election in North Rhine-Westphalia — one she is expected to lose — and public opinion in Germany is dead set against giving any aid to Greece.

Germany has been prudent. That is also due to historical reasons. Every German remembers the crazy runaway hyperinflation of the Weimar Republic in the 1920s which directly contributed to Hitler coming to power and the establishment of the Nazi Third Reich. And the feeling in Germany is never again.

Post-war Germany has been extremely fiscally prudent and has expected the same of its EU partners. Germans believe they have been the thrifty ant while Greece has been the proverbial free-spending grasshopper.