Shifting the outlook on crisis in Greece
Few can argue convincingly that the Greece economic crisis is under control. The Troika’s (ECB, IMF and European Commission) Plan A to prevent Greece from defaulting has consisted of bailout loans to enable the government to pay its maturing debts. In return, the Greek coalition government had to implement tough austerity measures that have brought the country to its knees both economically and socially. A sick patient is being hurried to the grave by being administered massive doses of toxic medicine.
The short-term side effects of the draconian austerity regime imposed on the Greek people are lethal. Greek unemployment rose to 25 per cent in August while youth unemployment has reached a staggering 58 per cent. The debt to GDP ratio is expected to hit 190 per cent by 2014. The Greek economy is projected to contract by 4.5 per cent next year and it is certainly not going to improve in any significant way for years to come.
The EU political leaders led by the German chancellor are in no mood to be generous. They fear political backlash in their own countries if taxpayers perceive that their taxes are being used to cushion the negative effects of decades of overspending by ‘foreigners’ who deserve no sympathy for having been so foolish in the past.
So the Troika continues to bicker about the next step in this Greek tragedy. The IMF insists that the bailout terms for Greece should include a clause that Greek national debt must not be any higher than 120 per cent of GDP by 2020 if more money is to be poured into the empty Greek government coffers.
This is simply not achievable. The respected German IFO Institute is more honest than European leaders in admitting that more financial engineering is not going to resolve the Greek crisis. The Institute states that: “Upholding euro membership for Greece has by now become an act of cruelty. It is not being done in the interests of Greeks. It is being done for the Project, by enforcers of the Project. Only by breaking free can Greece restore a minimum of economic vibrancy and national dignity.”
It is a shame that the monetary union’s fate is being dictated by ideologues in Brussels. The economist Ambrose Evans-Pritchard writing in the Daily Telegraph when commenting on the monetary union leaders in Brussels states: “We are not dealing with rational people. We are dealing with a religious order, and these monks are becoming an increasing danger to Europe’s societies and democracies.”
The effects of the prolongation of this crisis could be far-reaching. Spain, Italy, and possibly even France could face increasing pressure from financial markets if the Greek crisis is not resolved in a definitive way in the next few months. So far the markets have tolerated the dilly dallying of the political and institutional leader dealing with Greece.
This may change quite dramatically in the coming months if financial market sentiment is depressed by poor economic results in the EU and the US.
Surely the time has come for the EU and the IMF to shift their mindset on Greece. As the British foreign secretary William Hague said: “Greece is locked into the wrong currency with all escape routes blocked.” Further pension cuts, downsizing of the public service and salary reductions will only bring more misery to Greek society. The country is already experiencing a brain drain as the more mobile educated Greeks leave their country to seek better pastures abroad.
The Greek political class, as is the case in many other countries in Europe, has little credibility. The Greek prime minister whose conservative party was one of the main culprits that brought Greece on its knees through ‘grotesque mismanagement’ issued hysterical warnings about the likely effect if parliament failed to approve the Troika’s conditions for more bailout funds.
The best way out of this crisis for Greece is to leave the euro club. Of course, this will be painful. Greece would have to accept a massive devaluation of the new drachma against the euro. Hopefully, EU leaders will show that the much vaunted EU solidarity is a reality and not a fallacy. They should help Greece “with all kinds of investment and trade support to cushion the blow of abandoning the common currency club”.
The much dreaded word ‘devaluation’ is perhaps the only credible solution left to restore competitiveness in a country that is bankrupt. The sooner the Greek crisis is resolved, the sooner confidence in the euro will be restored.