By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
LONDON — Greece mustn’t waste its second chance. Athens looks like it will receive enough bailout cash to see it through to end-2013. But if it veers off track again, as is all too possible, any third chance might come with such extreme conditions that a messy default and a humiliating exit from the euro wouldn’t be far away.
The euro zone and International Monetary Fund are willing to provide more cash partly because the European Central Bank has scared Athens’ saviours into believing that a Greek default now would trigger a nightmarish set of domino collapses across the continent. In return, Greece has promised to raise the equivalent of 22 percent of GDP through privatisation by 2015, as well as squeezing another 10 percent of GDP from its fiscal deficit. There is also a plan to bail in private-sector creditors, albeit on a “voluntary” basis. That could cut the amount of new bailout money to perhaps 30 billion euros, out of a total funding hole of 65 billion euros.
Even if Athens keeps to its new promises, it won’t be out of woods. At the end of 2013, it will still be overloaded with debt, equivalent to around 150 percent of GDP, and face yet another funding gap. The best case scenario is that its budget will be in surplus before interest payments — a so-called primary surplus — making it strong enough to negotiate a savage haircut with its creditors.
But there are three reasons why Athens may disappoint again.
First, although George Papandreou is likeable and honest, the Greek prime minister hasn’t yet put in place a team able to wrestle effectively with a monstrously inefficient public sector. He needs to do this immediately. Nor has he managed adequately to carry the people with him — partly because he hasn’t apologised sufficiently for his own errors and partly because corrupt politicians and tax-evaders have been slow to be punished.