Stratfor Report: Greek Bailout and the Continuing Eurozone Crisis

Stratfor Global Intelligence Reports

Unrest in Greece continued on Thursday as the Greek Parliament voted for the second time to approve the austerity measures imposed on the country by the eurozone.

The passing of the austerity measures means that Athens will receive a 12 billion euro tranche of loans from the eurozone, and it also means that it will be able to get a new loan, probably around 110 billion euros, that will make sure that Greece is not default before 2014. Right now there are two hurdles facing the Greek government initiative and both have to do with marginal eurozone states Finland and Slovakia.

Analyst Marko Papic discusses the passage of Greek austerity measures as one of numerous difficult issues facing eurozone countries.

In Finland, there is an argument that Greece should put up collateral for all the loans it’s going to receive from the eurozone. What this means is that the Finnish government, which is somewhat Eurosceptic and which has already put up hurdles towards new bailouts of Greece, is asking that the Greek government puts up government-held assets, such as publicly held companies, and put them up as collateral for any future lending that the eurozone offers. Athens has categorically rejected this idea.

The other hurdle is from Slovakia, where there is a political crisis emerging over whether or not the government will actually support the second bailout to Greece. The Slovak government is a tenuous coalition amongst a number of parties and the bailout of a peripheral eurozone member state is again coming up as an issue as it did in the summer of 2010. However, these are marginal concerns.

Both Slovakia and Finland are relatively small eurozone member states and, as such, are not going to be able to move Germany and France on the issue of the second bailout, which thus far has received all the support it needs from Paris and Berlin. In fact, Berlin has managed to cajole its financial institutions to support a restructuring of privately-held Greek government debt, which is an impressive feat for Germany, considering the skepticism with which the German banks entered the negotiations. Nonetheless there’s not much choice for either the German banks or the German government. Ultimately German banks are the most exposed financial institutions in Europe, to Greek government debt in particular. And, therefore, they really didn’t have an upper hand in negotiations with the government to begin with.

At this moment, it is pretty clear that Greece is getting its second bailout and the hurdles that will be put before it are really not that important as long as Germany and France continue to support it. That said, the passage of a second bailout for Greece is not going to resolve the eurozone’s problems. There are a number of issues, from Spanish banking problems to be ongoing and developing Spanish and Italian political concerns, as well as Belgian political crisis that has really gone on for two years and Austrian potential banking problems due to exposure to central Europe, that still could refocus negative market attention towards other countries in the eurozone.