As Pyrrhic victories go, you’d be hard-pressed to find a better example than what just happened in Greece.
On Sunday evening, Greek politicians finally approved the three billion euros worth of austerity measures demanded by the European Union and International Monetary Fund. Measures that will allow the debt-crippled country to receive a 130 billion-euro bailout before it defaults on its debts on March 20.
It didn’t come easily. Several cabinet members resigned in protest at the plans and 40 members of the coalition government were fired after refusing to back the proposals.
And in response to the approval, thousands of desperate Greeks took to the streets of Athens, looting and rioting amid police, and burning around 40 buildings in the nation’s capital.
You can understand their anger and frustration…
When a Win is Really a Loss
The more contentious parts of the austerity package include laying off 15,000 public sector workers – part of a longer-term plan to chop 150,000 such employees from the workforce by 2016.
In addition, Greeks will suffer a 22% cut to the minimum wage – to 600 euros per month ($791) – as well as severe cuts to their pension plans. New labor laws will also make it easier to fire employees.
So what happens now?
Wednesday is the next pivotal day, as EU finance ministers meet to discuss whether Greece has finally fulfilled its bailout obligations. What’s more, with Greek elections looming in April, the country must promise that the cuts will be enforced, no matter the outcome of the vote.
All of which is just more uncertainty upon more uncertainty…
Having finally got to the point where Greece has agreed on an austerity package, is it a moot point? Many are skeptical whether Greece will even uphold its end of the bailout bargain, because it hasn’t yet made the cuts it promised in the first bailout deal.
Either way, it’s a lose-lose proposition for Greece…
Without a bailout, the country will default on its debts. The fallout would be catastrophic for Greece, whose economy would nosedive into a protracted depression… but also for the eurozone and global economy, both of which Greece would take down with it.
With a bailout, under the strict terms of the EU and IMF, it merely brings more sacrifices and misery to the Greek people in terms of layoffs and cuts in spending, wages and pensions. Consequently, with higher unemployment, tax revenue and GDP would shrink further and the economy would plunge deeper into the abyss.
But as this crisis has rumbled on, it’s enough to make you wonder exactly who – or what – is being bailed out here.
Greece? Sure. But clearly at a very heavy cost to the country and its people.
However, keep in mind that the situation has become so serious that the entire future and viability of the eurozone and euro currency is at stake here, too.
While some – like European Commission Vice President, Neelie Kroes – have suggested that the eurozone is in a better position to dump Greece now than it was two years ago, it still looks as if the EU is essentially trying to bail itself out. It’s terrified of the ramifications for Europe and the global economy if it simply casts Greece adrift.
And the bottom line is something that is becoming increasingly apparent: The eurozone is a failed venture.
It’s a “union” in name only, because when you throw together a pile of different countries – each with their own diverse economies, political systems and policies, demographics, values and cultures – and ask them to play by the same fiscal rules, under the same currency and the same “one-size-fits-all” interest rate, what you get is a nice idea in theory… but one that’s very difficult to regulate and sustain. Especially when you ask the ones that have played by the rules to spend billions bailing out the ones who’ve abused them.