In April 2010, when the Greek bond spreads exploded to new heights, rendering impossible Greece’s funding from the capital markets, the Prime Minister requested, from the remote island of Castelorizo, a bailout package for the country. It is basically a 3-year loan worth €110 bln, with an original interest rate of 5%; €80 bln are given by the EU, and €30 bln by the IMF. This money is given on the conditionality of strict austerity policies: privatisations, cuts in wages and pensions, increases of indirect taxes etc. Their implementation is strictly monitored every three months by the EU and the IMF, in exchange for the financial flows.
Greece is a typical example of a controlled or orderly default. Through the implementation of the Memorandum, the Greek public debt is transferred from the hands of private creditors, who are easier for a government to control, to the hands of the IMF, the ECB, and the eurozone countries. The Memorandum, signed simultaneously with the loan agreement, transfers sovereign rights to creditors. Indeed, the agreement signed by the Greek government in early May 2010 with the Troika does not differ hugely from the typical IMF loan agreements.
The conditionalities agreed include:
- An internal devaluation, through lowering the cost of labour and internal consumption.
- The exploitation of natural and other resources by selling off mining rights, mining companies and handing out licenses for pittance in return.
- Structural adjustment, such as market liberalisation (mainly labour market and financial market), and privatisation of public utilities (water, telecommunication, electricity, and all other profitable monopolies).
- Constriction of public deficits, of inflation, and of social spending (health, education, etc.)
- Wage freezes, and abolition of labour rights.
- Mass layoffs, especially of civil servants.
- The possibility for creditors to sell off the loans tothird parties.
This has defined the situation in Greece for the two years since the first bailout package. The new loan agreement however, and the haircut of the Greek debt, is accompanied by unprecedented austerity packages. They include layoffs in the public and private sector, massive wage reductions, the unconstitutional abolition of collective bargaining, the selling off of every profitable state business (state lottery, electricity company, ports), which is plunging society into impoverishment.