Bailed-out euro-area countries are facing “painful” challenges with worse-than-anticipated consequences of economic adjustment, including high unemployment and slow growth, central banks and finance ministries said.
Officials and ministers from Greece, Ireland, Portugal and Cyprus, in responses to European Union lawmaker questions published yesterday, described how their countries’ emergency aid had been followed by social hardship and continuing economic difficulties.
The bailout program had a “worse-than-expected impact on both output and employment,” Portugal’s finance ministry said. The program in Cyprus was “rigorous and painful,” according to the island’s central bank. Adjustment in Greece, after four years of cuts and efforts to make the economy more competitive, has come at “an extremely high socioeconomic cost,” Greek Finance Minister Yannis Stournaras said.
The testimonies come three-and-a-half years after Greece became the first euro-area country to be bailed out, using EU and International Monetary Fund loans. Since then the German-led path of aid in return for reforms and debt cuts has seen 396 billion euros ($538 billion) committed to the region’s four most fragile economies, with an additional 100 billion euros pledged for Spain’s banking sector. The bloc has endured the longest recession in its history and unemployment has reached record levels.
Government bonds in the euro-area’s most indebted nations have rallied this year, pushing Portugal and Ireland’s 10-year yields to the lowest since 2010 and 2006 respectively, as recovery sign’s in the region have boosted demand for higher-yielding debt.
Portugal expects to restart bond auctions in the first half of 2014, its debt agency said yesterday, after selling one-year bills at the lowest yield since November 2009. Greece’s Stournaras said last week that the government may sell five-year notes in the second half of the year, for the first time since being shut out of the bond markets in 2010. It would follow Ireland, which sold bonds last week for the first time since completing its bailout program.
Greek 10-year yields have dropped 68 basis points this year to 7.74 percent, after touching 7.53 percent on Jan. 13, the lowest since May 2010. The yield on similar-maturity Portuguese securities reached the lowest since August 2010 at 5.07 percent yesterday.
EU lawmakers questioned whether the so-called troika, comprising the European Commission, European Central Bank and IMF, which sets conditions for the countries receiving bailouts and monitors their progress, should have been more accountable and could have prevented the most painful effects of austerity. The European Parliament’s economic and monetary affairs committee is today discussing the responses received about the troika’s work.
European lawmakers will continue to work to make the troika more accountable, EU Parliament President Martin Schulz said on Twitter yesterday. Schulz is a member of Germany’s Social Democrats, the junior partner in the country’s coalition government.
While finance ministries and central bankers said that the hardships associated with the bailout conditions could not be ignored, they said they backed the process.
“The program, although rigorous and painful, is the only way that will enable the country’s exit from the crisis,” Cyprus’s central bank said in its letter to the 28-nation European Parliament.
Portugal’s finance ministry said that it “remained convinced” a bailout program had been inevitable and that “on the whole it remains a suitable and rational response to the crisis of credibility threatening our country.”
Ireland’s bailout-program exit last month and its return to financial markets “confirms that our strategy of providing assistance to euro-area countries that requested it in return for strict conditionality is working,” Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of his 17 euro-area counterparts, said in his letter to EU lawmakers.
He said that while growth is returning to the euro area and the economic outlook is improving “a number of important challenges remain, most importantly unacceptably high levels of unemployment.”
Ireland’s bailout program can be considered a success, Michael Noonan, Ireland’s finance minister, said in his response to the parliament. Even so, unemployment is still high, economic growth has returned more slowly than predicted and the country’s overall level of debt remains elevated, with a peak of slightly over 120 percent of gross domestic product expected this year.