With Greece's Final Austerity Deal Reached, the 'Gruesome Bleeding Process' Continues

This morning Greece and its creditors finalized a $170bn bailout package for the country with further austerity measures already bringing calls for strikes.

While Greek Finance Minister Evangelos Venizelos has said the bailout means a "nightmare scenario" has been averted, for many Greeks the further deep cuts mean the nightmare is unfolding.

The Guardianreports that the bailout package means wage and pension cuts, as well as increased unemployment:

Greeks will have to suffer further wage cuts than the 15% planned for the next three years in order to restore their country's competitiveness, senior EU officials have admitted.

The size of the IMF's contribution to the EUR130bn bailout - finally agreed on Tuesday after 14 hours of negotiations - has also yet to be decided, while the European commission will only present proposals for "an enhanced and permanent presence" of debt inspectors in Athens later this week.

Repeatedly conceding that their forecasts were subject to high risks, the officials said the Greek economy would contract by 4.5% this year after a fall of 7% last year and would stagnate in 2013 before growth resumed in 2014.

Unemployment, now running at more than 18%, is expected to remain above this level this year and next, be just below 17% in 2014 and remain above 15% in 2015. But wages will have to be depressed even further to reorientate the Greek economy towards exports.

The government of Lucas Papademos, or its elected successor, will also have to find savings equivalent to 5% of GDP by the end of 2014, with officials talking of stepping up the fight against tax evasion.

Greeks have already suffered a 30% cut in wages and can look forward to steep cuts in the minimum wage as well as pensions as the price for securing the latest EUR130bn bailout which, with EUR34.4bn rolled over from the original EUR109bn rescue package, gives EUR164.4bn available over the next three years.

Economist Mark Weisbrot says that the bailout package will likely make the economic crisis worse:

"The European authorities seem more intent on punishing Greece than helping the economy recover," said Weisbrot. "For two years now they have been pushing the Greek economy into recession, and there's still no light at the end of the tunnel."

A leaked document reported last night by Reuters and the Financial Times contains a "sustainability analysis" prepared for the European Finance Ministers. It portrays a grim scenario with explosive debt and Greece needing "about EUR245bn in bail-out aid, far more than the EUR170bn under the 'baseline' projections eurozone ministers were using."

"Given the underestimation of Greek losses so far, and the recessionary impact of budget tightening, mass layoffs, a 20 percent reduction of the minimum wage, and other austerity measures - I think the pessimistic scenario outlined in the leaked document is a very plausible scenario," said Weisbrot.

"The bottom line is that you can't shrink your way out of a recession - you have to grow your way out. What they are doing to Greece really makes no economic sense. At this point, it looks like the economy would do better if Greece were to exit from the euro, as opposed to enduring indefinite recession and stagnation, extremely high and persistent unemployment, and increasing poverty. The European authorities are certainly pushing Greece toward the exit and default option."

Sky News adds:

The deal includes "an enhanced and permanent" surveillance presence in Athens by the so-called Troika to observe implementation of promised reforms.

Dean Baker: "The pain being imposed is not a route to economic health; rather, it is a gruesome bleeding process that will only leave the patient worse off."

Economist Dean Bakerwrites that the push towards austerity led by the troika -- the IMF, EU and European Central Bank -- will only make the situation worse:

There is no economic reasoning behind the troika's positions. For practical purposes, Greece and the other debt-burdened countries are dealing with crazy people. The pain being imposed is not a route to economic health; rather, it is a gruesome bleeding process that will only leave the patient worse off. The economic doctors at the troika are clueless when it comes to understanding a modern economy.

Reutersreports that many see further recession on the way, and still the possibility of Greece leaving the euro zone:

Swedish Finance Minister Anders Borg said: "What's been done is a meaningful step forward. Of course, the Greeks remain stuck in their tragedy; this is a new act in a long drama.

"I don't think we should consider that they are cleared of any problems, but I do think we've reduced the Greek problem to just a Greek problem. It is no longer a threat to the recovery in all of Europe, and it is another step forward."

Jennifer McKeown, senior European economist at Capital Economics, said: "The austerity measures it will have to implement and increased monitoring by the troika amidst public outrage will make things harder and drive it deeper into recession. There is a risk of a euro zone exit later this year."

A return to economic growth in Greece could take as much as a decade, a prospect that brought thousands onto the streets of Athens to protest on Sunday. The cuts will deepen a recession already in its fifth year, hurting government revenues.

"We sowed the wind, now we reap the whirlwind," said Vassilis Korkidis, head of the Greek Commerce Confederation. "The new bailout is selling us time and hope at a very high price, while it doggedly continues to impose harsh austerity measures that keep us in a long and deep recession."

The BBC reports that strikes to protest the austerity package have been called:

Trade unions have called for new street protests on Wednesday and the head of the opposition Communist party has vowed to oppose new cuts.

"We insist on daily struggle to thwart the measures and this struggle cannot be a defensive one," said Aleka Papariga.