Image by rockcohen via FlickrWith the Euro crisis we're back to where we started a year ago: Greece is being battered from all sides.
Let me count the ways:
(1) By the credit rating agencies - but that's no surprise, those agencies are basically in the pay of big banks and multinational corporations all out to cover their backs as investors;
(2) By the biggies in the Euro-zone, in particular France but especially Germany - nothing new here, Ms. Merkel has piled up nasty comments, knowing how well they resonate back home and she needs votes at the next election;
(3) By neighbouring countries, Italy and Spain - and that's something new, although not very surprising: both the Italians and Spaniards are worried that Greece's pains will ricochet to them, as investors realize they share the same kind of troubles (high debt, high unemployment, no or little growth);
(4) By the EU that is asking for Greece to reform asap, in particular pursue privatization of telecommunications, electricity and the port of Athens.
(5) By the International Monetary Fund (IMF) - Dominique Strauss Kahn, reputed to be a friend of Greece, is no longer at the helm, but that doesn't change one iota in IMF demands for policy reform and austerity;
(6) By the European Central Bank (ECB), aligned with the IMF: it will not hear of any form of debt restructuring.
Where does that leave Greece and the Euro?
Athens clearly risks default if it doesn't get more EU funding. Adding insult to injury, the IMF won't release its June aid payment if funding support is not guaranteed by the Europeans (this was announced by the Greek Finance Minister).
The privatization measures the EU is so keen on will bring relief (some €50 billion), but surely this is not the best of times to sell the crown jewels and results might be far less than expected. And in any case, sales will take time.
So can Athens avoid default if nothing is done?
Greek debt stands at €327 billion, 150% of gross domestic product, and is expected to reach 160% in 2013 - patently unsustainable. This is a fact, and a solution MUST be found.
But it doesn't look like the one major European institution that should be concerned is reacting with any sense of either rationality or responsibility: the ECB is adamant it won't accept any Greek debt as collateral in its refinancing operations. That sounds very technical but it means simply that Greek banks and insurers will go kaput under the weight of their debts. And, as we know when Trichet (the head of ECB) walked out on European finance ministers in Luxembourg last Monday, the ECB won't hear about any "soft restructuring" proposal. Greece must follow the EU/IMF programme completely or else!
What's the solution? Any ideas? Before you say with glee "I told you so", the Euro was always ill-conceived and cannot survive, please consider that if Greece pulls out of the Euro, the solution will be worse than the problem. Because the Greek financial system - and all payments throughout its economy, from the bank to the small store owner - will necessaily grind to a halt while Greece sets up a new currency. Establishing a new, functional currency takes time, and, though Greece is a small, peripheral country, it still means destabilization for the Euro-zone for an extended period.
And a destabilized Euro is dangerous for the whole world! Personally, I think Europeans have no choice but give the IMF the required guarantees before June and cough up the necessary funding, embark on "soft retructuring" and/or do whatever is needed to save the Euro.
In my view, Greece is not just a test for the Euro but a scapegoat: a reason not to take the measures that SHOULD be taken, including fiscal reform, pension reform etc and not just in Greece but throughout the Euro-zone!
What do you think?
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