Greece May Suffer Temporary Loses of Sovereignty

May 29th, 2011
in econ_news

greek columns Econintersect:  How much will a financial bailout cost Greece?  How about its independence as a nation?  The Financial Times reports (article by Peter Spiegel, Quentin Peel and Ralph Atkins) that European leaders are negotiating a deal that would lead to unprecedented outside intervention in the Greek economy, including international involvement in tax collection and privatisation of state assets, in exchange for new bail-out loans for Athens.  This solution is that austerity could be imposed from outside by the EU.  Greece would, temporarily, not have its own government.

Follow up:

The Greek government has not been able to get legislative support for austerity measures  the the European Union (EU) has insisted are prerequisite to further lending.  According to Spiegel et al, EU officials do not think Greece will be able to raise any money on its own as part of the current €110 billion refunding package.  Without that, the IMF would be forbidden from distributing any additional cash. Without the IMF funds, eurozone governments would either be forced to fill the gap or Athens could default.  

The sale of government owned assets and extended repayment schedules may help and pave the way for the IMF and the EU to resolve the crisis.  From the Financial Times:

Officials hope that as much as half of the €60bn-€70bn ($86bn-$100bn) in new financing needed by Athens until the end of 2013 could be accounted for without new loans. Under a plan advocated by some, much of that would be covered by the sale of state assets and the change in repayment terms for private debtholders.

Eurozone countries and the International Monetary Fund would then need to lend an additional €30bn-€35bn on top of the €110bn already promised as part of the bail-out programme agreed last year.

What does change in repayment terms mean?  Lenders may be asked to extend bond maturities to support the effort to resolve the crisis.  Even agreement to accept reduced payment of principal might be on the table - a form of partial, negotiated default.

A second article at (no byline) suggests another path for Greece is to leave the EU and returb to the drachma.  Such a suggestion was reported to have been made by Maria Damanaki, Greece’s European Union commissioner.

In order to avoid a Greek default and bring the IMF back into the picture, an agreement must be reached before the EU finance ministers' meeting on June 20, according to the Financial Times

 Sources:  Financial Times (here and here -  

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