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|Posted on June 27, 2015 at 4:28 PM||comments ()|
The Greek debt saga rumbles on, now in its final death throes, if I can characterise it as such. At the moment, the Greek government has rejected the proposals for tightening i.e. more austerity in a country hit by a prolonged recession.
The Syriza government of Mr Alexis Tsipras has been elected to fight austerity, and restore economic growth through expansionary measures - which is actually the right way, as has been proved in the United States and the United Kingdom. Just because Greece does not have its own sovereign currency, the formula should not be much different for them either. The Euro mechanism should be able to provide that stability and funding (perhaps a form of Quantitative Easing) to Greece instead. And thus far, the European Union and ECB in conjunction with the IMF and other creditors have provided Greece with the liquidity to keep it afloat, maintaining its creditworthiness and continuing to finance the economic activity in their nation.
Whatever Greece has received so far, from the dark days when Mr Papandreou was jetting around the world trying to find supporters and ultimately, just in time, Mme Merkel of Germany championed a rescue for Greece, has been quite substantial. First the bailouts totalling nearly 240 billion, then another 100 billion recently.
The IMF which holds a pool of money from 180plus countries, both poor and rich, has the obligation to lend very responsibly. Greece has received loans which it is obliged and expected to repay.
Look at the USA. Their Quantitative Easing of $2.15 Trillion per annum from August 2011 for one year equates to about $6500 per person (population of 330 million) In the U.K., the £375 billion introduced into the system means about £6,000 per person (population 65 million). Greece, with a population of 11 million, equates to over 21,000 Euros per person. This is a grand sum. The money they have received has been invested in their economic Recovery, which is showing first green shoots of Recovery, having registered growth of 0.7 percent last quarter. But onlookers would expect much better performance.
The newspapers have noted that Greece had not received the previous tranche of 10.7 billion, and are waiting for the 7 billion last tranche currently. Of course, receipt of such funds would facilitate them being able to pay the 1.3 billion nearly due to the creditors.
But as they have not received these aforementioned sums, they may still be able to pay the instalment, although with some difficulty, as they have been paying for the last twelve months. But should they not be unable to meet that payment, technically they can claim that they are not in default. If the creditors have not forwarded the loans, the borrower is finding it difficult to service the debt. So technically it could be argued they would not be in default on 30th June, Tuesday, come what may.
It seems all sides will try and save the day, so for the world at large, it will be a blessing in disguise that technically there will be no default, regardless of what happens, and it will give them all some more time to hammer out a new deal.
Put a hand on the heart : Could your pensioners live on 400 Euros a month, as they do in Greece? No.
In a country where people's income is low, and spending is also low, would raising VAT slow down spending further, and cause a deflation, due to goods remaining unsold because of the higher price? I would suggest that would be the scenario. I suggest the ECB-IMF should not insist on implementing such measures in Greece; that would allow the Syriza government to maintain its place in peoples' affections, and perhaps do the expansionary measures which the country is crying out for, and which would lead to a full Recovery, and thence to Prosperity in Greece. With the last tranche(s), I believe the ECB-IMF consortium have to take that gamble, and it will pay off. It has worked in the U.S. and U.K., why should it not work in Greece? As Spain has started to recover, I believe so will Greece. They just need that final bit of support, which ought to be provided as easy loans and without any onerous terms and conditions which the Syriza people just will not accept. Give them a free hand, and give them loving support and blessings, and I believe they will do well.
At this final hurdle, they have to make it an act of faith. As the good book says, with faith, all is possible.
Durudarshan H. Dadlani