The Greek leadership closed in on a bailout deal yesterday that would add more austerity to the economically ravaged country. The negotiation consisted of the technocrat Prime Minister Lucas Papademos forcing the parties in his unity government to accept the terms.

After a drama-filled few days as discussions were repeatedly delayed, (Papademos) had to persuade political leaders backing his interim administration to accept the tough conditions attached to further rescue funds from the European Union and the International Monetary Fund.

“There are outstanding technical issues but when they meet tomorrow we can expect the politicians to accept it,” said one well-placed official after talks between Papademos and party chiefs were pushed back yet again.

“Part of the reason why the discussion is also taking longer is that the leaders have to come to terms with what they have to accept.”

How long will the public have to come to terms with this? For they are the ones who didn’t borrow all that money, but they will suffer the consequences. But instead of “time,” protesters in Athens, 10,000 strong in Syntagma Square, got tear gas in the face. Riots, with attempts to burn a German flag, coincided with a nationwide general strike. And union leaders promised more actions in the coming weeks.

As for the deal itself, you should remember that there are actually two. There’s the deal with the “troika” – the IMF, EU and the European Central Bank – for bailout funds for Greece, in exchange for the austerity measures and labor market reforms. And then there’s the deal between Greece and its creditors, for a haircut on Greek debt. The ECB is actually a party to both deals, and their key concessions on the debt deal are moving the process along.

The European Central Bank has made key concessions over its holdings of Greek government bonds, which will contribute to a reduction of the country’s debt burden and smooth the path toward a new bailout for the country, said people briefed on Greece’s debt-restructuring negotiations.

The decision by one of the Greek government’s biggest creditors will narrow a gap in Greece’s finances, helping pave the way for a debt-restructuring agreement with Greece’s private-sector creditors and a new €130 billion ($170 billion) bailout from other euro-zone governments and the International Monetary Fund.

Previously, the ECB didn’t want to take a loss at all.

Even if this final agreement goes through – and while it looks better for Greece, success is not yet assured – this hardly solves Greece’s problems. As we learned this week, two years of austerity has only led to a higher debt-to-GDP ratio for the country, as they sink into a near-depression. The Greek public is growing sicker and less prosperous and more desperate. As one economist puts it:

Yiannis Varoufakis, a professor of economics at Athens University was just as blunt when he told me, “This is Greece’s Great Depression. If you look at the statistics it is indeed a deeper slump than what Greece went through in the 1930s.”

And the cure being offered is what helped prolong the disease.

David Dayen

David Dayen

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