The debt problem cannot be ignored, but economic growth is key to recovery and Greece needs to broker a successor to its current bail-out package, says Rowan Dartington Signature’s Guy Stephens.
Greece’s finance minister, Yanis Varoufakis, is doing the rounds in Europe, having been nominated as the chief negotiator with the EU following the election. He visited France last week, was in London on Monday ) and will appear in Rome shortly. Germany have already reiterated their stance that no further debt write off is going to happen and have added that social and fiscal reform has to remain as part of any deal.
However, there would appear to be some light ahead in the form of a ‘Bail-out Two’ package which perhaps goes some way to explaining why the equity markets are relatively calm. It is clear that the current bail-out deal is not working and has only served to shrink the Greek economy which increases their debt as a percentage of GDP. It is also obvious that the US adoption of Keynesian economics, whereby a national government spends its way out of recession, has worked spectacularly well and this is the approach that the UK has also moved towards and growth is now also robust.
Yes, we know about the debt problem, but without economic growth and a recovery in business confidence and employment, cutting spending and raising taxes only serves to cut off the legs of the economy when it is already on its knees. It will never recover in that environment and brings economic depression with it as a downward spiral takes hold. This was a key influence to Ben Bernanke’s thinking, who is seen as an expert on the failings of policy in the US Economic Depression of the 1930s. At that time interest rates were increased to defend the value of the dollar in a recessionary environment and this effectively shut down any signs of recovery for a decade.
If the Greeks can broker a successor to the current bail-out package, which is available to other indebted nations, whereby interest payments are suspended and debt repayment and the resumption of interest payments are delayed until there are robust and concrete signs of economic recovery, then we may have something to look forward to.
I think it is interesting how the pro-austerity camp continues to push for social and economic reform, but hardly surprising that national governments are struggling to reduce welfare benefits with their unemployed electorate. The bigger picture on reform surely should be with regard to the fiscal structure within the EU itself. Mark Carney has been quite vocal on the obvious flaws in mixing a single EU monetary policy with multiple national fiscal policies. The richest nations in Europe need to also accept that being part of the Euro club doesn’t mean you can selectively choose who to help and who to abandon to years of austerity. We all have wayward cousins, but because they are part of the family, we club together to sort the problem out with lessons learnt and a new way forward. The current status quo is one of zero tolerance.
This is all that Greece is trying to do and it is time for all the members to work towards a pragmatic solution which prioritises the individual citizen who has limited responsibility for their country’s economic mess. With pensioners relying on food hand-outs and patients dying in hospitals from power cuts, an economic disaster has become a humanitarian disaster and that cannot be allowed to persist in a developed nation economic union.