Greece: The miracle that lasted just three days
26 July 2011
The new rescue plan agreed by the EU on July 21 has not helped to calm the credit rating agencies. To get out of their impasse, the Greeks must change their methods and push forward a development policy, writes an editorialist.
Miracles, they say, last three days. Well, it must be true, because just three days have gone by since the EU summit, and the rating agencies are flaying us alive [on July 25, Moody's downgraded the rating of Greece, which is now only a single notch above default].
You may tell me that one might have expected it. The result was expected, and, I would even add, immaterial. In any event, the decisions made at the summit will be judged on their merits and over the long term, and not over a summer weekend.
Still, I would offer up three observations:
First, the decisions taken at the EU summit are very clear and positive in terms of tackling the sovereign debt and supporting Greece by granting an additional loan. A gulp of fresh air, as they say.
Second, it must be said that things are very vague in terms of cutting Greek debt, which, in six months, should exceed 162 percent of GDP – a staggering level. It’s all rather unclear at this stage – and it can’t be otherwise, for from the moment the "voluntary participation" of the private sector was brought into the debt relief package, no one has been in any position to predict how generous each contributor will prove to be.
Third, the ultimate judges of the efforts made by the Greeks are (for better or for worse) the international markets, which we hope to borrow on once again in 2014 – so said Finance Minister Evangelos Venizelos. The close interactions between the markets and the rating agencies are known and embedded in the system.
Development, development, development
There is, therefore, no doubt that the general crisis and the unsustainability of the debt will add substantially to the debt burden. But how to reduce debt to sustainable levels?
Right after the EU summit the Wall Street Journal calculated that Greek debt would drop below 100 percent of GDP. The assessment of this newspaper is of particular importance, because it reflects, more than any other newspaper, the views of the markets and rating agencies.
We are talking here about a drop in the order of between 135 to 140 billion euros without any voluntary participation from the private sector. Frankly, to rely on such a hope would be ridiculous.
Where can the drop, then, come from? From development! This means that if, in the equation, we merely increase our GDP, the debt burden will decrease drastically.
That is why the formula remains unchanged: development, development, development. There is no other method, no other way forward.
And so I hope that, in the end, the Marshall Plan from Brussels will not prove to be akin to those investors who show up every summer to buy the PAOK Thessaloniki football team and, in the end, go away without leaving a penny behind.