The alternative – a default that could prompt domino defaults in other struggling countries and a credit freeze among European banks – is far too costly both to Greece and the eurozone, says Jacob Kirkegaard, a research fellow at the Peterson Institute for International Economics. European finance ministers will meet next week to decide whether to release that money.
How will Greece secure another loan?
Greece has to pass $40 billion worth of austerity measures, including further cuts to public programs and jobs and tax increases, and it has to jump start a stalled process of privatizing state assets if it is to receive the loan. It also has to rein in rampant tax evasion that has robbed the government of much-needed revenue.
The details of the newest round of cuts and taxes are not yet public, although Mr. Kirkegaard says one possibility he's heard circulating is shrinking the number of public employees by only hiring one person for every 10 people who retire from a public sector job. The government has already cut pensions by as much as 30 percent and raised the retirement age by as much as 10 years, among other things.
Government cutbacks and increased taxes aren't pain-free for the economy either, which shrank by 4.5 percent last year and will contract further as a result of austerity measures. But the cuts will benefit the "wasteful and inefficient" Greek government in the long run, Kirkegaard says.
Claims by the political opposition that further austerity measures are impossible and that they will renegotiate the IMF and EU loans if they are elected is "just a cynical political calculation," he says. "Austerity cannot be the only way to balance the books … (but) additional austerity can and has to happen."