In the three years that Greece has been engulfed by the drama of its debt, crises have come and gone. However, the next 12 months are likely to be more critical yet, with politicians and pundits predicting that this year will ultimately define whether Athens remains in the eurozone. For once, Greeks are in accord with German Chancellor Angela Merkel, who added to the prevailing pessimism by emphasizing in her new year address that the worst crisis to ravage Europe since World War II “is far from over.”
Few doubt that the continent’s most powerful leader had Greece — the country she recently confessed to thinking more about than ever before and not “without a certain inner involvement” — in mind. The uncertainty that has enveloped the nation since the debt drama erupted beneath the Acropolis has not been alleviated by the passage of time.
After five straight years of recession, the eurozone’s weakest link moves into the new year with an economy set to further contract, unemployment at a record 26 percent, one in three living on or below the poverty line and the worst of austerity yet to come. In the run-up to Christmas, even the Greek Minister of Finance Yannis Stournaras felt fit to admit that despite being the recipient of 240 billion euros (US$313 billion) in EU and IMF rescue funds — the biggest bailout in global history — Greece could still default on its massive pile of debt, a move that would result automatically in exit from the 17-nation bloc.
“We still face a possible risk of bankruptcy,” he told the Financial Times, adding that Athens’s fate would undoubtedly be determined by the ability of Greek Prime Minister Antonis Samaras’ fragile coalition to survive the unrest that will inevitably erupt with the enforcement of cuts worth 9.2 billion euros this year alone.
Much will depend on whether the debt-stricken country meets the expectations of international creditors keeping insolvency at bay, and whether Greeks have the stamina — and their government the resolve — to accept and enact painful reforms.
“We can make it [in 2013] if we stick to the program agreed with the EU and IMF,” Stournaras said. “What we have done so far is necessary, but not sufficient, to achieve a permanent solution for Greece.”
Analysts speak of a year of two parts, with the German general elections in September expected to play a pivotal role. Only then will a newly installed government in Berlin — the main bankroller of bailout funds to date — be prepared to take the potentially costly decision of endorsing an official sector writedown of Athens’ staggering 340 billion euro debt load, observers say.
For while the fiscal adjustment made by Greece is by far the biggest made by any Organisation for Economic Co-operation and Development country in modern times, there is no one who believes that its debt load is anywhere near manageable.
“By about June, everyone will be talking again about the inability of Greece to perform economically,” right-wing political commentator Giorgos Kyrtsos said. “If the economy is to function again and the country to remain in the eurozone, it has to be absolved of at least 50 percent of its debt. Currently, the situation is hopeless, with debt at 180 percent of GDP.”
On Jan. 31, pensioners and civil servants will experience their first real wage cuts in more than a year.