Another Greek Bailout but Still Little Chance of Recovery

by Veronique de Rugy

National Review
February 21, 2012

An agreement was reached on a $170 billion Greek bailout last night. The deal — the second one — is meant to buy some time for Greece to fix its financial crisis and hopefully signals to the world that a Greek default — and its possibly disastrous consequences — will be forestalled, at least for now.

However, I haven’t yet read any account that makes me think that this deal will change anything. In fact, the Financial Times reports today that analysts from the European Central Bank, the International Monetary Fund, and the European Commission expect that the bailout won’t work. They even handed out a confidential memo outlining the reasons for the expected failures. Among them is the fact that the austerity measures being imposed on Greece in exchange for the cash (cash that can only go pay for debt payment) are too drastic and may sink the country even further.

And I think, ultimately, this is why this can’t ever work. While Greece and the rest of Europe may share a short-term goal to avoid a default, their interests are not aligned otherwise. Among other creditor countries, Germany, Netherlands, and Finland are reluctant to sink more money into Greece and take on big losses on their “investments” without some extreme assurances that the country will get its financial house in order. The deal is trying to impose these measures in a way that may make them even more unacceptable to Greece and impossible to implement. In fact, it is even possible that so much austerity, so fast, is in fact a bad decision.

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