Europeans are coming around to the idea that a new bailout of Greece will only pile on more debt, only making the euro / Greece financial crisis worse. Greece’s problems are compounded by the weekend arrest of IMF chief Dominique Strauss-Kahn, a major supporter of Greece and further Greek bailouts.

Negotiations are ongoing with the “troika,” consisting of the International Monetary Fund (IMF), European Central Bank (ECB), and the European Union (EU).

Although no decisions have yet been made, sources indicate that new harsher austerity measures will be imposed on Greece, according to capital.gr:

• Immediate privatizations: Full privatization of the gas and phone companies, as well as some state-owned banks.
• Shutdown of loss-making state-owned enterprises: The Greeks have already promised this, but EU officials are complaining that the implementation keeps getting delayed.
• Mass dismissals: the shutdown of many public enterprises will make impossible the absorption of employees under the new rule of 1 recruitment for every 10 dismissals. The troika also asks for the abolishment of job permanence.
• Name and shame: Publication of well-known names that are involved in major financial scandals, to prove that Greece intends to contend with established interests and reverse the strong social resentment.

There have already been violent anti-austerity riots, last year and as recently as last week, and the threat of mass dismissal of unionized public sector employees will almost trigger even greater rates of violence.

It’s going to be a long, hot summer in Greece, but even that won’t make any difference. A new bailout will buy time, but won’t stop Greece’s spiral into insolvency. Even without the austerity measures, Greece’s economy is in recession, and the austerity measures will make it much worse, according to Kathimerini.

And putting Greece into default, according to all the reports that I’ve read, will be a financial disaster for European banks, many of which are carrying Greek bonds on their book at nominal value. A Greek default will cause a sharp recession through Europe. There is no way out of this.

Merkel rejects Greek debt restructuring

Germany parliamentarians are pressuring the government to oppose a new bailout of Greece, and Chancellor Angela Merkel is facing a potential party rebellion over new bailout loans to Greece. Spiegel

However, Merkel herself is saying that Greek debt restructuring (another word for default) is out of the question: “It would raise incredible doubts about our credibility if we simply were to change the rules in the middle of the first programme.” Financial Times (Access).

Euro group backs a bailout for Portugal

Europe’s finance ministers didn’t reach any decision on Greece, but they did approve a bailout package for Portugal. The package demands an ambitious austerity program and makes economic growth assumptions that aren’t realistic. Reuters