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VOL. 39 | NO. 27 | Friday, July 3, 2015

Easier terms for Greece could open a can of worms in Europe

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LISBON, Portugal (AP) — Eurozone governments taking a tough line on Greece's demand for debt relief and easier bailout terms fear opening a can of worms.

Ceding too much ground to Athens could ignite a broader political crisis by infuriating people in other bailed-out countries in the currency bloc which, unlike Greece, have obediently complied with the demands of creditors and largely restored their financial health through painful — and politically costly — austerity measures.

Governments in Spain, Portugal and Ireland, which all face elections within the next nine months, fear losing power to parties that, like Greece's radical left Syriza, are calling for an end to budget cuts and easier terms on debt.

As Syriza inspires opponents of austerity across Europe, here is a look at what's happening in the eurozone's other big three debtor countries.



Spain's radical leftist party, Podemos, has since its birth last year been calling for a restructuring of Spanish government debt. Its economic policies are similar to those of Syriza, and it has been one of the Greek government's biggest supporters in Europe.

Podemos and its leader, pony-tailed college professor Pablo Iglesias, drew huge support in May's municipal elections and could hold the balance of power in national elections that are on the horizon.

That makes the Greek debt controversy a political threat in Spain, with potential economic consequences spilling beyond the borders of the European Union's fifth-largest economy.

Spain took 41.3 billion euros in rescue loans in 2012 to save its banks left vulnerable by a real estate crash. It has reimbursed 5.6 billion euros and is scheduled to make repayments until 2027.

Experts note there is a big difference between the cases of Spain and Greece.

"Spanish debts to international bodies are very small, about 4 percent of gross domestic product. Meanwhile, Greece has to negotiate its entire government debt," said Juan Jose Toribio, an economist and professor at the IESE Business School in Barcelona.

But that will not prevent Podemos from making debt relief a big campaign issue and a threat to Spanish Prime Minister Mariano Rajoy.

Rajoy hopes to get re-elected on the strength of the healing economy, with growth forecast to surpass 3 percent this year. He says the public spending cuts and reforms such as those making it cheaper and easier to hire and fire workers, which triggered mass street protests, were inevitable to correct the country's finances.

Greece's request for some relief on its debt burden is not being well-received by some. "The real story, I reckon, is that they don't want to pay what they owe," said Ignacio de Luis, a 53-year-old taxi driver in Madrid.



Syriza's cheerleader in Ireland, the nationalist opposition party Sinn Fein, is riding high in the polls and aiming for a slice of power in elections scheduled by May.

With that in mind, the Irish government's message to Greece is the most clear-cut of Europe's fellow bailout recipients: If you want to get out of the hole, admit you dug it yourself, stop blaming others — and do everything possible to reassure creditors you can be trusted to pay your bills.

The Irish government has surprised many observers at home by flatly rejecting calls for Greece to have some of its debt mountain erased: three years ago, the Irish were pressing Brussels to grant them the same concession over the 64 billion euros in Irish bank-rescue losses that the EU forced Ireland to absorb into its own national debt.

The Irish losses had destroyed Ireland's own credit worthiness in 2010 and forced the nation into a three-year bailout program.

By way of concession, Irish Finance Minister Michael Noonan says the Greeks should have their bailout debts restructured — but not reduced — to ensure they pay the lowest possible interest rates and over a much longer period of time. Ireland has saved billions off its own repayments by negotiating such breaks over the past two years and regained trust on the bond markets.



A backlash against pay and pension cuts and tax increases could cost the center-right coalition government power in elections due by the end of the year.

The main opposition Socialist Party is vowing to ease off on budget austerity and place the emphasis on growth.

Spending cuts and tax increases have improved Portuguese finances since 2011, when it needed a 78 billion euro bailout loan after a decade over overspending. The budget deficit is forecast to drop below 3 percent this year from 10.1 percent in 2011. The economy grew 0.9 percent last year after three straight years of recession.

Still, the country still has a long way to go. Government debt is almost 130 percent of gross domestic product, the third-highest in the European Union. And Portugal still has to pay back 72 billion euros of its bailout, a sum that could be a burden for generations to come.

Antonio Costa Pinto, a research professor at Lisbon University's Institute of Social Science, reckons the Portuguese government won't seek changes to its debt repayment conditions whatever happens with Greece, "because it wants to show that it has been doing the right thing, and the proof (of that) is the (economic) recovery."

Short of debt relief, however, a new government would be under serious pressure to follow Syriza's lead in focusing policies away from spending cuts and more on boosting economic growth.

Rebecca Norte, a 23-year-old Lisbon store assistant on a temporary contract, says she feels no improvement in her prospects and wants creditors to be more sympathetic to people's plight.

"It feels like we're being punished," she said.

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