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Greece: another serving of EU fudge

Greece is finally emerging from its financial rescue programme, but it will have to keep a tight lid on spending for years.

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Greece's crisis still hasn't been resolved

"It has been too long coming," says the Financial Times. After suffering the equivalent of America's Great Depression a 25% fall in GDP since its debt crisis began eight years ago, and three emergency bailouts, Greece is now finally emerging from its financial rescue programme. It exits the European Union and International Monetary Fund's bailout package in August.

Last week's deal with the EU stretched deadlines on €100bn of bailout loans. The repayment period has been extended to 2033; the grace period for interest payments has also been pushed back by ten years, so the average loan maturity is now 40 years.

Some of the last tranche of bailout cash will be allocated to servicing debt. The upshot is that Greece "has very little to repay in the near term and enough reserves to run the country for nearly two years", says Lex in the FT.

But the good news ends there. Greece "is swapping bailout hell for eternal purgatory", as Neil Unmack points out on Breakingviews. It will have to keep a tight lid on spending for years: the Europeans have insisted on a primary budget surplus (before interest payments) of more than 3.5% of GDP, three times the eurozone average. After that until 2060 the primary surplus falls to 2.2%.

Greece's debt pile is too high

Throughout the years, every plan to deal with Greece's recurrent drama was heralded as the ultimate solution. It never was and this one, despite EU economic affairs commissioner Pierre Moscovici's insistence that "the Greek crisis ends here", will also prove a false dawn.

As usual, the plan is based on "forecasts of strong growth and large budget surpluses that [are likely] to prove too optimistic", says Capital Economics. Greece doesn't have a hope of growing fast enough to work off its unsustainable debt pile of 180% of GDP. This package has alleviated but not solved the problem; the debt burden has just been pushed "further into the future". At some stage, however, "either a managed haircut or a disorderly default seem inevitable".

The economy has returned to growth, but still looks fragile. The 2% growth rate depends on ultra-long debt maturities and low interest rates. The banking system is still grappling with bad loans. Unemployment remains high at 20%; corruption is endemic. Political support for ongoing austerity is hardly guaranteed either. An unpopular pension reform, due to be implemented next January, "will test" people's inclination to make further sacrifices, says the FT. Once again, Europe has bought itself some time. And once again, a problem is being managed, not resolved.

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