By Jack Duffy
PARIS (MNI) – With less than a month to go before its voters again
go to the polls, can Greece still be saved?
Certainly the signs are ominous. The start of possible bank runs in
Greece and Spain, a falling euro, plunging equity prices, record low
rates in safe havens like German Bunds and bond yields that are rapidly
reaching unsustainable levels in the periphery, all point to a draining
of confidence in the Eurozone.
And yet the mother of all euro-chicken games continues to be waged
between Athens and Brussels.
Alexis Tsipras, the 37-year-old leader of Greece’s left-wing Syriza
party, says if Brussels cuts off its funding, Athens will repudiate its
debt, triggering economic chaos. Brussels, meanwhile, has resorted to
its standard line of warning that a member will face economic and
political isolation if its voters don’t come up with the right answer.
What is clear is that, more than two years into the debt crisis,
the Eurozone’s strategy for coping with it needs a change of course.
Austerity can only work if it is supported by the voters, and in many
countries that is now no longer the case.
Francois Hollande’s election in France could be the start of that
change. If France moves to put its relationship with Germany on a more
equal footing and is adamant about the need for growth policies to
accompany fiscal consolidation, voters — including those in Greece —
may feel less of an impulse to support extremist parties.
Jean-Marc Ayrault, France’s new prime minister, gave a nod in that
direction on Friday, telling French radio that “we must aid Greece, we
must give them a signal” to help the country overcome the “brutality of
the austerity plans” that leave no prospect of economic recovery.
But the urgent question is what can be done in one month to
convince Greek voters that their best chance for emerging from the
crisis lies inside the Eurozone rather than outside.
Charles Dallara, who represents the world’s biggest banks as head
of the Institute of International Finance, argued this week that a
number of things can be done, some in the short-term.
In a speech in Dublin, Dallara said deficit targets for problem
countries like Greece should be stretched out by as much as 30 months;
EU bailout funds should be able to invest directly in weak banks rather
than channeling funds through overburdened government budgets; and the
EU should create a E50 billion fund to help retrain displaced workers.
Dallara, who helped negotiate the Greek private-sector debt swap
earlier this year, said the current Eurozone obsession with short-term
budget cutting “has actually led to an undermining of fiscal
credibility” in the eyes of private investors.
In its search for a credible response to the debt crisis, the
Eurozone has always lagged market expectations. As markets signalled
that the crisis had become deadly serious, leaders met in summit after
summit and produced little but Band-Aid responses. Finally realizing
that confidence depended on slashing deficits, the Eurozone locked its
weakest members into an endless round of budget cuts and tax increases.
Now Eurozone leaders are finding that the target has moved again.
Cutting deficits has not helped to revive growth, and government debt in
countries like Spain is soaring. A credible policy response now demands
that leaders address the lack of growth in peripheral countries like
Spain and Italy that threatens to make their debt unsustainable.
And the response cannot simply be more talk about structural
reforms. Such reforms, while necessary, take years to bear fruit. In the
short-term, they cause more pain as workers are displaced.
So whether it’s Dallara’s call for loosening the yoke of deficit
reduction or moves to boost the capital of the European Investment Bank
so it can fund projects that create jobs, the Eurozone needs to do
something now and do it fast.
With only one month to go until Greeks cast their votes, there is
not much time left to win their hearts and minds.
(EuroView is an occasional column written by Market News
International editorial staff. Any views expressed are solely those of
the writer)
–Paris newsroom. +33142715540; jduffy@marketnews.com
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