The lights are still on in Athens. Greece’s parliament approved a proposal on Wednesday to pursue additional austerity and fiscal adjustment measures. The European Union and the International Monetary Fund can release €12bn of additional funding, enough to allow the government to repay debt maturing up to the end of August. The day of reckoning has been postponed yet again.
The parliamentary vote was actually the second piece of relatively good news on the Greek front this week. The first was that a French proposal to offer some private sector burden-sharing (with European banks reinvesting some maturing government bonds they hold in new, 30-year Greek paper) is gaining traction. If implemented, the proposal could see the potential cost to Europe’s banks of an eventual Greek default roughly halved from the widely accepted haircut figure of between 60 and 70 per cent.
The French proposal is not policy, however, and will not amount to much if too few private sector investors, who own about €60bn of Greek government bonds, sign up for it. And none of this week’s developments addresses the central issue of Greece’s insolvency. The success of Greece’s medium-term fiscal strategy depends on an unlikely plan to sell €50bn of state assets. The government’s ability to implement the austerity measures must also be questioned: the vote in parliament was held to the sound of rioting and the smell of tear gas.