Bailout buys time but debt unsustainable without growth
Published 22/02/2012 | 05:00
BEFORE the ink was even dry on the latest Greek bailout, the sceptics were decrying the €130bn deal as no better than a sticking plaster for a patient who is terminally ill.
Athens may now be able to pay off the €14.5bn due in mid-March, they say, but the remission has been bought at a price -- in terms of both living standards and sovereignty -- that the country will not be able to repay. Better to stop delaying the inevitable. Better to pull the plug and let Greece drop out of the euro.
It is an argument that sounds plausible but is missing the point. Indeed, to ask whether the latest bailout will be enough is to start from the faulty premise that there is a resolution to the euro crisis available, if only Europe's politicians would grasp it.
Not so. There is only a grindingly slow process of evolution, fraught with peril. The question is not whether the latest deal can solve Greece's problems, but rather how to make best use of the breathing space it has created.
First, however, the bailout. On paper, compromises from Athens, the troika of lenders, and private sector bondholders, will see Greek debt come down to a more manageable 121pc of GDP by 2020.
The uncertain process of ratification by individual eurozone governments now begins. Most crucial of all is next Monday's vote in the German Bundestag.
The immediate threat of a default averted, attention can now focus on the EU summit in two weeks' time, with plans to expand the rescue fund designed to act as a firewall to stop Greece's ills spreading elsewhere top of the agenda.
Only by buying time for Greece can there be a chance of putting together a lasting solution to the euro's problems. Buying time is, therefore, no bad thing. Quite the reverse. Particularly when the alternative is to let Greece crash out of the euro, with incalculable results.
One crucial piece is still missing, however. Greece is already into its fifth year of recession. Without economic growth, no amount of austerity will enable it to pay its debts. (© Independent News Service)