Was is a good deal?

The Prime Minister needs to be congratulated on his public performance at EU levels during the last months. Until Merkel/Sarkozy finally sat down last Wednesday to do some serious business (note that there was no leak after their meeting!), it seemed like there was a EU-kindergarden on one side and a polished professional who kept his poise all the time (and didn’t talk nonsense) on the other. Congratulations!

Of course, the Prime Minister now faces the challenge to explain to Greeks why, with all that new money to come, the government will have to save even more in the near future.

More importantly, the Prime Minister needs to be aware that the present joy will last only until the next time that the Troika needs to make a compliance check (September/October?). That will be the time when Greeks have returned from the beaches to find out that, among others, their energy costs for the winter will sky-rocket.

Also, the Prime Minister needs to be reminded that any solution to the Greek problem stands on 3 pillars; they are inertwined and if only one of them fails, the entire construct will fail. These pillars are: government spending and public debt (much progress has been made here), the banking sector (capital flight) and the private sector (de-industrialization). The latter 2 pillars have not yet been addressed at all.

The deal reached is a good one for Greece in as much as it lowers the government’s interest expense and reschedules debt maturities coming up during the next 3 years for 15 years. It is an excellent deal for the banks because their loan maturities during the next 3 years will be paid and any new loans they may have to make “voluntarily” during this time will be guaranteed by the EU.

For the tax payers it is “more of the same” (i. e. spend more money to bail out banks).

Whether or not it is a good deal for the Greeks depends entirely on what the next steps by the Greek government are regarding the banking and private sector. If the government believes that reducing the spending and implementing step-by-step measures (like privatizations, gradual liberalization moves, etc.) will eventually trickle down and make the economy grow, then it is mistaken.

The government must implement a comprehensive economic development plan which must be based on curtailing imports through import substitution projects, financing those new projects with foreign investment and stopping capital flight.