August 7, 2022

Greece Approves Tough Measures on Economy

Markets rallied globally, and European leaders welcomed the passage of one of the most radical overhauls of the Greek economy since democracy was restored in 1974.

But the changes are deeply unpopular in Greece, where street protests continued, and the Socialist government of Prime Minister George A. Papandreou will need to overcome widespread skepticism that it can carry out the budget cuts, layoffs, tax increases and forced asset sales, beginning with a vote Thursday on putting the measures in effect.

Economists also expressed concern that the austerity program demanded by European and international lenders could end up pushing the Greek economy into a deeper slump, making its debt even harder to pay back. More broadly, critics said they doubted that Europe had done more than postpone a day of reckoning for the euro, with Ireland, Portugal and Spain, as well as Greece, all struggling with slow or negative growth and rising debts.

The passage of the measures, a difficult and possibly debilitating feat for a Socialist Party elected on a social welfare platform, ensures that Greece’s foreign lenders will unlock the next installment of $17 billion in aid that the country needs to meet its debt obligations through August. But analysts in Athens predicted that the existing government might not last much longer than that, suggesting that political and financial uncertainty could continue for some time.

“It’s a giant step in terms of conception,” said Theodore Couloumbis, a vice president of the Hellenic Foundation for European and Foreign Policy, in Athens. “But it’s a baby step in terms of realization or implementation.”

European political leaders have pressed Greece for months to commit to a thorough overhaul of its bloated, state-led economy, and they hailed the vote on Wednesday as offering hope that the debt crisis was manageable.

Chancellor Angela Merkel of Germany welcomed the development as “really good news,” while the president of the European Commission, José Manuel Barroso, and the European Council president, Herman Van Rompuy, said in a joint statement that Greece had taken “a vital step back — from the very grave scenario of default.”

They urged Greek lawmakers to pass the second vote on Thursday on carrying out the measures, adding that “it would also allow for work to proceed rapidly on a second package of financial assistance, enabling the country to move forward and restoring hope to the Greek people.” Officials have promised that they will make more money available to help stimulate growth in Greece if it sticks to its austerity pledges.

Europe has much at stake in making the new bailout a success because several other countries that use the euro face similar, if less immediate, problems of high debt, widespread unemployment and little or no growth. Ultimately, many economists say, the sovereign debt of Greece and some other countries will have to be restructured, with their creditors accepting a discount on the debts’ face value. European officials have so far sought to avoid taking that step.

“If Europe comes together with an appropriate framework, that will enable a default to be avoided,” said Joseph E. Stiglitz, the Nobel-winning economist. “But there’s every sign that Europe won’t do that, so the likelihood of a problem down the line is very significant.”

Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, who is now a Harvard professor, said the Greek vote and the infusion of aid would only buy a little time.

“It’s certainly kicking the can down the road,” Professor Rogoff said. “Greece is basically being bribed not to default. But as long as Greece doesn’t grow briskly for a sustained period, it’s in hot water.”

Hope is also in short supply among many Greeks, who said that the first round of austerity imposed after Greece’s first bailout last year had worsened rather than improved their plight, and that the second round demanded even deeper cuts in many areas.

“Of course things will get worse,” said Thimios Vilias, 35, who said his two-year contract at an insurance company would run out soon and who came out to protest on Wednesday. “The measures won’t do any good for Greece. We have more debt, more debt, more debt, and we have no work,” Mr. Vilias added.

Niki Kitsantonis contributed reporting from Athens, and Liz Alderman from Paris.

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