A stitch in time

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Mahmudur Rahman
Who would have ever conceived that it would be Germany that would have to dig deep in to its coffers to come up with a sizeable chunk of not small change to prevent Europe from disintegrating? But that is what occurred on Sunday, May 9 the day that Europe Day celebrations were organised by European Union (EU) missions.
While the revellery continued, grim faced Finance Ministers coughed up a whopping $ 975 billion dollars loan guarantee deal with the International Monetary Fund (IMF) that led to an immediate fall in the risk premium on some euro zone government bonds as well as the price of insuring them against default. This was crucial in the wake of rumours that Portugal and more importantly Spain's deficit was going too far south for comfort. The first country to avail the EU bail-out, Greece saw its two year bond interest rate plummet from 18.1% to just 4.9%.
In essence the agreement now allows the European Central Bank (ECB) to intervene to buy up relevant government debt so that bond yields could be reduced and markets could be re-started. The 16 euro zone members will have access to 440 billion euros of loan guarantees and 60 billion euros of European Commission Funds. The IMF's contribution is in the region of 250 billion Euros.
The bad news is that none of this will create new money in the euro zone nor will this offset recessionary impact of public spending cuts and tax rises required necessitated by countries with huge public-sector deficits. The German opposition is furious because it views the move as a way to get its tax payers to prop up their profligate neighbours. And if the prices of the bonds never recover, its money would go down the drain. The German government wasn't too well inclined to any of these measures and following their resounding defeat in regional elections, one can see why. But they chose to humour France, which along with Germany are regarded as the pioneers of the Euro zone concept. And it is no secret that French President Nicolas Sarcozy actually threatened to "reconsider" France's staying with the EU unless such measures were taken.
Stitching up a patient after an accident is a necessity but it's up to the patient to fully recover. This measure does nothing to generate new money ; it is merely the bandage and medicine required to prop up an ailing economy.
The Euro zone thus embarks on a painful journey in sorting out finances. The global impact will be significant and Bangladesh will have to bear its share. No wonder the UK never wanted to be part of this. With a 64 billion sterling deficit of its own to take care of they were echoing E M Forster's famous novel title "Fools rush in where angels fear to tread".
(The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specialises in corporate affairs, communications and corporate social responsibility. He can be reached at e-mail: mahmudurrahman@gmail.com.