Tentative EU-Greece Bailout Deal Inflicts More Painful Austerity, But Will Fail Without Debt Relief

Posted July 15, 2015

MP3 Interview with Mark Weisbrot, co-director of the Center for Economic and Policy Research, conducted by Scott Harris


Despite the Greek people's overwhelming rejection of more austerity measures in a July 5 national referendum, Greek Prime Minister Alexis Tsipras of the leftist Syriza party yielded to most of the demands of Eurozone creditors in high stakes negotiations that concluded early in the morning of July 13. In exchange for a third international bailout of some $96 billion, the Greek Parliament is expected to approve painful tax hikes, reduced pension payments and deepen budget cuts. One possible silver lining in the deal is a vague reference to future debt relief, a position supported by the International Monetary Fund in a leaked report that warned unless Europe accepts the reality that Greece needs major debt relief, the IMF won't provide any more bailout funds.

Although Prime Minister Tsipras and his party were elected in January on a pledge to resist more EU-imposed austerity measures, he must now convince members of his own party and the Greek people that the deal he agreed to was the only way forward for his country to avoid economic collapse and remain in the Eurozone. But many in Greece are in a defiant mood after five years of harsh economic policies that have ushered in conditions where 40 percent of the nation’s children live in poverty, infant mortality is skyrocketing, unemployment is 25 percent and a health care system is on the brink of collapse.

Between The Lines' Scott Harris spoke with Mark Weisbrot, co-director of the Center for Economic and Policy Research, who assesses the impact of the tentative EU-Greek bailout agreement and how the deal may affect the growing anti-austerity movement challenging neoliberal economic policies across Europe.

MARK WEISBROT: The European Central Bank did something that no central bank in history probably has ever done and that was, they created deliberately on June 28, a severe financial crisis – the one that did something they hadn't done in six years of depression. They shut down the banking system of Greece. And so, (Greece's Prime Minister Alexis) Tsipras had a choice. The Syriza government was to either agree to the deal or they could have a more severe crisis – including a real financial meltdown and ultimately be pushed out of the euro, as well. That's why they surrended, the same people why people pay ransom when they're family's kidnapped. Now that's not to say that there's no other choice of ever going forward, because obviously, it is possible to leave the euro.

The trouble is that Tsipras had promised in the run-up to the referenda that they weren't voting, people though, weren't voting to leave the euro. So at the same time, they were voting to reject the austerity. So he had to choose one or the other. And I think he chose for the moment, what the majority of people in Greece preferred, as bad as it was. That doesn't mean they're going to prefer that a year or even a few months from now.

BETWEEN THE LINES: Mark, I wanted to find out your take on this. What if anything, did Prime Minister Tspiras win regarding debt relief? Because there was some vague mention of debt relief, but nothing as far as I read in the reports specific telling the Greek people that there's a light at a the end of the tunnel here.

MARK WEISBROT: Well, there is debt relief going to come and I think that's because the IMF in the U.S. who forced this, because the IMF has a board of directors and board of governors and that includes not just the U.S. Treasury Department, although that's the dominant voice for most of the world, but in regard to Europe, the executive directors from Europe also have a voice. But the U.S. insisted, and therefore the IMF insisted, that there had to be debt relief. So the government did win that, because in the last deal, there was no movement on debt relief at all. So that is kind of what happened. I mean, the U.S. was involved in these negotiations and they insisted on debt relief. You have to read a little between the lines to see that, but it's very clear.

The main issue is to be able to recover, to have the economy recover and bring down the mass unemployment and get out of the depression that they're still in. And that's where this program is probably going to fail because it's still squeezing them too much even if everything goes through this week and Greece does the things that European officials are demanding, they're still squeezing too much. So, it's still a mess.

BETWEEN THE LINES: Mark, how do you think that this agreement that's been hammered out, this tentative agreement, how do you think that will affect the growing anti-austerity movement across Europe, specifically in a country like Spain, where the Podemos party – a powerful, new anti-austerity party – is a real contender in upcoming national elections there?

MARK WEISBROT: Well, I think that's one reason why the Eurozone officials were so stubborn and brutal here. They can see what's happening in Spain. This is Podemos, close to leading in the polls now and they didn't even exist a year and a half ago. So, the Eurozone officials and the general elite of Europe, which includes the Social Democratic party unfortunately, that's why they lost so much support in Spain and Greece. The Social Democratic left has kind of collapsed in most of Europe now because of the austerity, because they endorsed it. So all of these people, so all of the establishment doesn't want to see them have anything that looks like a success. So, in a way, I think the surrender in Greece probably helped Podemos a little bit, because if they had gone out of the Eurozone at this time, things would have gotten worse there before they got better, and they would've used it to scare everybody in Spain. Unfortunately, it doesn't look like a victory for them. The referendum definitely helped Podemo, but then this won't, necessarily. So it will depend on what happens in the next few months. If it looks like there's still going to be some resistence, in that the battle's not over.

For more information visit the Center for Economic and Policy Research at cepr.net.

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