Why other bailed-out euro countries may back a third rescue for Greece

Having swallowed the bitter medicine of their own austerity-driven bailout programs, the people of Ireland, Spain, Portugal and Cyprus might be expected to insist that Greece live up to obligations taken on in exchange for the $270 billion it has already received.

Public sentiment may be resentful toward the rebellious Greeks, who spurned their European creditors’ last proposals for more budget cuts and higher taxes in a referendum Sunday that gave a resounding “no” to more belt-tightening pain.

In fact, the governments in Dublin, Madrid, Lisbon and Nicosia have seen the benefits of fiscal reform and wise investment thrust upon them by the same “troika” of creditors. Having adhered to the terms of their own bailouts, they now are experiencing growth that is chipping away at unemployment and raising living standards after years of erosion.

The other countries bailed out by the International Monetary Fund, the European Central Bank and the European Commission are also now on the lending end of the bloc’s programs for lifting fellow Eurozone states out of crisis, giving them a stake in seeing Athens eventually emulate their success.

Their governments seem inclined to back French and Italian leaders who hope to find a solution to Athens’ latest crisis that will keep it in the common currency alliance.

Germany, the Baltic states and central European countries that use the euro have been less supportive of another costly lifeline to Athens, especially in light of an IMF report last week that Greece will need at least $66 billion more in aid in the next two years to keep up with its debt payments.

The peripherals, as economists refer to the European Union’s Mediterranean laggards and the Irish isle on its northern extreme, are still struggling with high jobless rates and tight budgets as they balance debt repayment with investment in growth-accelerating reforms. But all four countries that teetered on the edge of bankruptcy after the 2009 recession are seeing their economic freefall broken, Ireland first among them, with the fastest-growing economy in the 28-nation European Union.

Irish Finance Minister Michael Noonan suggested Tuesday that the Athens government take a look at Ireland’s experience of the last three years, after it restructured its debts to free capital to invest in job- and income-producing industries.

“There is not a one-size-fits-all that we are looking at,” Noonan said on the sidelines of the Eurozone finance ministers’ meeting in Brussels, where he called on the Greek delegation to propose a more manageable debt schedule and viable plan for turning the economy around.

As a recovered economy, Ireland would be among the creditors in any third bailout for Greece and probably would have to provide at least $1.1 billion for the next rescue attempt, Noonan said.

The same trio of international lenders now trying to save its investment in Greece lent Ireland 67.5 billion euros -- $74 billion at today’s exchange rate -- in 2010 to resolve a banking crisis brought on by bad loans during the property boom in the years before the European recession. Three years later, after massive cuts in social welfare and government jobs, Dublin became the first Eurozone country to exit the bailout, having overcome the worst economic crisis in the country since the potato famine.

Noonan’s announcement in December 2013 that Ireland didn’t need to borrow any more money from the troika prompted then-European Commission President Jose Manuel Barroso to proclaim that “Ireland’s success sends an important message,” that solidarity within the Eurozone can help troubled members overcome their financial crises.

Spain’s ruling conservatives, who secured access to European rescue loans of up to $110 billion for its troubled banks three years ago, have also advised Athens that fundamental reform is unavoidable if the country wants to escape the slow strangulation of crushing debt.

“We’re inclined to help Greece but Greece must follow Europe’s rules,” Spanish Prime Minister Mariano Rajoy told the Telecinco news program Tuesday, noting that Spain is now reaping the benefits of having taken the hard steps of government cutbacks and privatization. The Spanish economy has posted growth in each of the last seven quarters, although the unemployment rate has remained stubbornly high at 23.8%.

Spanish Finance Minister Luis de Guindos said during the Eurozone gathering in Brussels that Greece “has the right to ask for a third rescue package.” The Greek economy is so indebted that without more immediate support it has no opportunity to generate growth and eventually reduce the debt burden. He faulted the troika for too much emphasis on austerity but said, “It is inevitable that Greece make reforms because there have been nations that have done them and they are emerging from the crisis.”

Portugal is another example. Lisbon needed a 78-billion-euro ($86 billion) rescue in May 2011 when borrowing from credit markets became unaffordable. The country exited its bailout program last year after enduring three years of painful budget cuts and tax increases.

Portuguese officials have said little about the Greek default except to distance themselves from the Balkan country’s plight.

“Portuguese have made a lot of effort to beat bankruptcy and do not deserve to be associated with the Greek situation,” Deputy Prime Minister Paulo Portas said in apparent response to concern expressed among Eurozone analysts that Athens’ default might give rise to the moral hazard of other borrowers deciding to shirk their debts.

Cyprus, where banks were hit by the 2012 writedown of Greece’s debt that came with its second bailout, secured a 10-billion-euro rescue package in March 2013. The loans to Cyprus were granted in concert with a raid on bank deposits that imposed a one-time levy of 9.9% on accounts with 100,000 euros or more and 6.75% on the rest.

Cypriot President Nicos Anastasiades was the most unequivocal of bailed-out Eurozone leaders in backing Athens’ expected call for significant reduction of its debt to create some breathing space for income- and job-producing growth projects.

“What is needed, in my view at this stage, is to consider the unsustainability of the Greek debt,” the right-of-center Anastasiades said.

Leftist parties in the Eurozone periphery applauded Greek Prime Minister Alexis Tsipras’s victory Sunday in persuading a majority of his country’s voters to reject the troika’s demands for more austerity before talks on a third bailout can begin.

But those political forces, though on the rise in Spain and Portugal, are unlikely to make major gains on the governing conservatives in the next elections unless the Greek rebellion pays off. If Greece’s far-left Syriza government fails to win an easing of repayment terms with its spurning of creditors, economic chaos is expected -- hardly an outcome that would be embraced by austerity-weary voters.

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