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European Central Bank President Jean-Claude-Trichet (r) with Greek Finance Minister George Papaconstantinou at a meeting of EU finance ministers in Brussels, May 16, 2011.
European leaders are maintaining pressure on Greece to deliver on its €50bn
Greece must broaden and accelerate the programme, Eurogroup head and prime
minister of Luxembourg, Jean-Claude Juncker, said Tuesday.
"Greece has to take new commitments. Greece has to enlarge the ambition of
its privatisation programme," Juncker told reporters after a meeting with
Dutch Prime Minister Mark Rutte and his Belgian counterpart Yves Leterme.
On Monday, Greece "reaffirmed its determination to continue with the fiscal
consolidation programme by taking additional measures of over €6bn or
2.8% of GDP in order to achieve the 7.5% deficit target for 2011.
The detailed measures together with the full medium-term fiscal strategy
aimed to bring the deficit close to 1% of GDP by 2015 will be announced once the
ongoing current review of the programme by the EU/ECB/IMF team is concluded and
after consultation with the other political parties," the Ministry of Finance
said in a statement.
The statement added: "At the same time, the Cabinet decided to immediately
proceed with the sale of stakes in OTE, the Postbank, the Athens and
Thessaloniki ports, and the Thessaloniki water company in order to frontload its
ambitious privatization programme. To accelerate the process, the creation of a
Sovereign Wealth Fund composed of privatization and real estate assets was also
OTE is the Balkans' largest telecoms operator and the ports of Piraeus and
Thessaloniki rank among high traffic ports in the Mediterranean in terms of
tourism and trade.
The Financial Times reports today that Greece’s ability to manage the
programme on its own was called into question again on Tuesday when the
government’s main opposition party rejected new austerity measures proposed by
George Papandreou, the Greek prime minister, and questioned the way he was
proceeding with privatisations.
The European head of the IMF recently said that the Greek government has
property assets valued at €280bn
Prof. Peter Morici of the
University of Maryland commented on Tuesday: German Engineering and Greece’s
Debt Crisis;"In all their
piety, the barons of Europe—German politicians and the European Central Bank—are
pressuring Greece to sell off assets, raise taxes and curb spending to resolve
its debt crisis. After all irresponsible southern EU states are in need of
rehabilitation and some lessons in Teutonic thrift.
Sadly, selling assets won’t lower Greece’s debt enough to make it manageable.
Further, cutting spending and increasing taxes further will thrust Greece into a
deep and prolonged recession and severe deflation. That might raise Greek
exports enough to service its euro denominated debt but not without turning much
of Greece into a Great Depression era Appalachia.
And, Greece’s problems are hardly all its own doing. The 1992 Maastricht Treaty
widened and deepened the EU’s single market, and raised expectations in poorer
EU states for retirement, health care and other social benefits on a par with
rich states like Germany and France. However, the treaty did not provide
Brussels with the taxing powers Washington enjoys to equalize Social Security,
Medicare and Medicaid, and other benefits across the 50 states.
With Maastricht, German manufactures and technology became more valuable in a
single integrated European market. However, Greece, Portugal and others were not
able to use their lower labor costs to capture assembly plants to the degree
that the post-World War II American South captured northern textiles and
furniture factories, and now attracts automobiles and high-end electronics
manufacturing. Germany and other rich states enjoy subtle forms of protection
that discourage sufficient outsourcing even to other EU member states, and this
frustrates the EU single market promise to more effectively equalize prosperity
among the prosperous core and southern Europe.
Germany grew richer, while Portugal, Greece and others fell behind northern
Europe. In such circumstances, the currencies of poorer states would be expected
to fall in value, lifting exports and providing a new elixir for Mediterranean
growth, but the advent of the euro in 1998 put the kibosh on that most vital
tool of macroeconomic policy.
Prosperous Germany, unburdened by an obligation to share significant enough tax
revenues with poorer EU states, used the wealth it obtained exploiting a single
market to provide generous pensions, gold plated employment security and jobless
benefits, and the shortest workweek on the planet. Meanwhile, governments in
Greece and other poorer EU states struggled to keep up, piled up lots of debt
and couldn’t scale back spending too much without risking political upheaval.
Their voters don’t understand why the much touted single EU market imposes equal
responsibilities without ensuring more equal benefits.
If Greece still had its own currency, it would still have had to cut spending
and increase taxes—but not by nearly as much as richer EU states and the ECB now
demand—because Greece could also devalue its currency against those of richer EU
economies to make exports more competitive, accelerate growth, and increase debt
But like an American homeowner with a mortgage too large relative to his income,
Greece is too far in debt for any kind of refinancing that does not cut
principal owed to succeed.
Selling off Greece’s prized assets, like the Piraeus Port Authority or the
Thessaloniki Water and Sewage Company, will only finance interest payments for a
period without addressing Greece’s fundamental insolvency problem.
In the end, the only viable option is to restructure its debt—ask bondholders to
accept long maturity and lower interest rates, or a more explicit write down of
amounts owed. The ECB has threatened to abandon Greece’s private banks if Athens
That would force Greece’s banks into failure and surely thrust Greece into a
depression. And it begs the question: if the ECB won’t support the only
reasonable solution for Greece, why should Greece remain in the euro?
Thanks to German and ECB intransigence on restructuring, Greece has no choice
but to require sovereign and private creditors to take haircuts; abandon the
euro and reinstate the drachma; and rethink its welfare state.
Like Americans, the Greeks will have to work longer to retire, accept other less
generous social benefits, and accept that the European dream of a single market
is a very pleasant reality for the Germany and other rich states but a nightmare
of constant austerity, or worse, for the poor Mediterranean nations.
In the bargain, Greece can let its currency adjust to a value that fairly values
its exports and regain control economy. The alternative is endless EU
bailouts—something the German, Dutch and French voters are doubtful to
allow—loss of Greek sovereignty, and economic collapse."
Greece is the World's Second Lehman Brothers: Peter Morici, professor from University of Maryland argues that despite the hefty debt problems in Greece, it'd be a huge mistake if the EU didn't provide a bailout for the country: