Daily Israel Report
More

Zion's Corner Blogs


Bailout II: Unprecedented Sequel to Greek Bailout

The EU is trying desperately to piece together another bailout for Greece that will effectively mean the loss of economic independence.
By Amiel Ungar
First Publish: 5/30/2011, 8:03 PM / Last Update: 5/31/2011, 2:08 PM

According to the Financial Times, Europe's leaders, who are desperately trying to prevent a Greek default, are trying to piece together a second bailout. Greece cannot cover its liabilities and has not shown that it can meet the terms of the first bailout.

The International Monetary Fund is threatening to withhold its share of the bailout until the figures add up and some European politicians are already muttering that what is good for the IMF should be good for the EU, which should also turn off the financial taps.

To convince EU economic skeptics such as Germany, the Netherlands and Finland that this time Greece will walk the straight and narrow, a proposal is in the works under which Greece will effectively forfeit its economic independence and international bodies will take over tax collection and privatization of state assets.

In Teddy Roosevelt's day, the United States imposed the so called Roosevelt corollary to the Monroe Doctrine. The 1821 Monroe Doctrine was designed to keep the old world out of the New World.

The problem was that by the turn of the 19th Century, Latin American countries borrowed from the old world and then couldn't or wouldn't pay their debts. This brought the threat of European military intervention to collect the debts. To forestall such intervention, the US  staged a preemptive intervention, effectively took over customs and the treasury of Latin American countries in trouble, and stayed put till they had collected enough money to pay off the creditors.

The Latin American countries regarded this as a blow to their pride, and undoubtedly many Greeks will feel the same way, even though the invasion is to be performed by accountants with spreadsheets rather than by the US Marines.

Another pillar of a proposed second bailout is massive privatization. This is a quick way to raise money without taking on further debt. Spain has just sold off the state lottery company.

The Greek public service unions and the opposition parties are up in arms calling the privatization effectively a liquidation and are taking action. Employees of the postal bank blocked entrance to the bank headquarters in Athens. Other companies and assets on the privatization block are telecommunications companies, the port of Piraeus, electricity utilities and railroads.

In addition to raising cash, privatization may also raise productivity. Notable examples of perks on the rail are the extra pay for rail employees if their train journeys take them more than 50 km from their hometown. Another is food stipends to employees of the state oil company, who in any case can eat for free in the company cafeteria.

A former finance minister claimed that money could be saved by closing down the state railway and letting everyone ride by cab. Privatization is not without problems because putting too many assets on the market at one time creates a buyers' market. Likewise, things may not move as quickly as expected, as the lawyers and the appraiser's conduct their studies.

Another part of the package will be an attempt to co-opt the leading opposition party into approving the deal.  One would have expected this to be easy, as New Democracy leader Antonis Samaras and Prime Minister George Papndreou are personal friends and were dormitory roommates during their student years in Amherst College. In Greek politics, however, things are never that easy.