‘EU help to Greece only good for six months’

The EU summit “was a water pistol rather than a bazooka” in solving the financial troubles of the union, as banks writing off half Greece’s debt is but a very short term measure, says Johan Van Overtveldt of the business magazines Trends and Knack.

­Though European leaders declared confidence in the results of the latest urgent summit, which took place in Brussels on Wednesday, the meeting was a sad disappointment to many analysts.

This is just buying time. It is not the bazooka everybody has been asking for; I would describe it as a water pistol,” Johan Van Overtveldt told RT.

As the official communiqué of the summit states, Greece will receive €130bn more in bailout funds in early 2012. Greek Prime Minister, George Papandreou, announced in Brussels that this deal has made sustainable the country’s debt burden, which currently stands at around €350bn.

But Van Overtveldt, editor in chief of Trends and Knack – two of Belgium's leading business magazines, stresses that this measure will prevent the spiraling escalation of the Greek debt only in the short term.
Moreover, the banks’ €100bn sovereign debt reduction agreed by EU leaders will not write off even half of Greece’s total debt, remarks the analyst.

The debt reduction amounts to one third of the Greek debt, because a lot of the debt that is outstanding does not fall under yesterday’s agreement,” he said. “As the European authorities themselves say, this will reduce the Greek debt ratio to 120 percent GDP by 2020. By any means, a debt reduction by 2020 to this extent cannot be described as a major achievement, as this ratio is still very high [as compared to projected 160 percent GDP under the previous conditions].”

Neither will the EU summit help to decrease the annual deficit of the Greek government, which Johan Van Overtveldt expects to hold in the red, at eight or nine percent GDP. Athens has already announced that its 2011 deficit is projected to be 8.5 percent of GDP – lower than the 10.5 percent of 2010, but still well over the target of 7.6 percent set by the EU and IMF as the requirement for a new tranche of money.  

With that in mind, the Greek government is not expected to turn away from its austerity course. But cutting expenditure and increasing taxes will ultimately worsen the tough recession Greece is going through.

More red ink on the budget will make Greece return to negotiations with the EU authorities in less than six months, says Johan Van Overtveldt.