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New bailout may buy only months for Greece

Tuesday, June 21, 2011

Europe’s plan for a new bailout of Greece may buy the country only several more months’ breathing space before it again has to confront the prospect of default or a radical restructuring of its debt.

A pledge by Eurozone finance ministers on Monday to pay a 12 billion euro (US$17.2 billion) tranche of emergency loans in July — provided the Greek parliament first passes new austerity steps — is expected to keep Greece afloat into September.

But the ministers’ plan for a second bailout takes the same approach as the first rescue, launched in May 2010: it does not include direct steps to cut Greece’s debt pile and merely tries to stave off default until Athens can reform its budget and the Greek economy starts growing its way out of trouble.

This approach began to fail within nine months of the launch of the first bailout, as Athens missed its debt and growth targets by big margins, and political support for austerity inside Greece has weakened since last year.

Source: FinancialPost.com

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