By: Mike Campbell
It should come as a surprise to nobody that follows the financial markets and the foreign exchanges that the Eurozone/IMF bail-out measures for Greece have been given the approval of Germany and agreed, in principal, by Eurozone finance ministers. The measures will still need ratification in various fora, but it would be enormously surprising if a wheel was to come off at this stage. Somewhat reminiscently of Shakespeare’s The Merchant of Venice, the Eurozone and the IMF are insisting that Greece should strengthen and deepen its austerity measures. The aim of this is to make the “rescue” package all the more credible to the markets and to “encourage” other somewhat wayward states to put their own houses in order before they find themselves suffering the Greek fate. These new measures involve raising VAT by 2% to 23%; hiking fuel, alcohol and tobacco taxes by 10%; taxing illegal construction; capping public sector salaries and pensions for three years; capping annual holiday bonuses and scrapping them altogether for higher earners; and eliminating bonus payments for public sector workers. It goes without saying that the measures will be extremely unpopular in Greece which has already seen strike action and some civil unrest over the government’s own austerity measures. For this, the Greeks will have access to €110 billion over the next three years. In many quarters, this package has been eluded to as a bailout with the implication that the debts that the Greeks have run up will be paid by Germany and France with the other 13 Eurozone nations chipping in small change. Whilst the exact distribution of the costs between Eurozone members has yet to emerge (the IMF is covering €30 billion), it is not a gift. The loan attracts an interest rate of about 5% which means that the Greeks are paying at least €5.5 billion - simple interest – for the privilege.