Bailing out Greece

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Mahmudur Rahman
In a world focused on 'today' no one really likes the person who dares to dream ahead. And so, after the global economic meltdown when most were predicting a recovery there were some who sounded a note of caution; somewhat like an after quake they predicted a second wave. The concept was rubbished in general but what has happened in Europe recently gives rise to a new apprehension.
The almost sudden debacle befalling Greece has now raised new questions not just of the country but indeed of the euro zone concept itself. There are rumours that Portugal and more troublingly Spain may be headed the same way in seeking bailouts to deal with out of control debt brought about by joining the band wagon of public spending surges akin to stimulus packages.
A whopping $ 146 billion bailout for an economy threatening to go bankrupt does after all have its consequences. The price that Greece will pay is a staggering $ 40 billion dollar cut in its expenses bill that will have to come from somewhere. The grim Germans, forced into putting up the lion's share of a $ 100 billion euro zone contribution have made it clear that Greece really will have to get its act together. Even they would not have agreed had it not been for a last ditch brokering by Nicolas Sarcozy. The International Monetary Fund (IMF) which is to fund the remaining $ 46 billion will be just as active in regular monitoring of the Greek economy and furrow their brows a little more with the rumours surrounding Spain and Portugal.
This is not good news for Europe, especially as it comes after Ireland. And that perhaps rankled with the Germans as they weighed the option of allowing Greece to go down versus weighing in with help. The issue is whether there's enough in reserves to allow for a second or even third such package. One doubts it.
With most European countries on the wrong side of debt size, stability is a factor for lending institutions. It was only after Greek had proved that no one was willing to borrow it money did the European Union (EU)-IMF package come through. The money will help service debts-but for how long? Where will Greece find the money to pay back in the future? The 2009 Greek debt was at euro 273 billion with public deficit at a staggering 13.6 % of gross domestic product (GDP).
The inevitable first step in the form of severe pay freezes, pension cuts and steep tax hikes has led to chaos. The streams of people that took to the streets of Greece on the 1st of May had an entirely different agenda from the traditional celebration of an occasion that forced the agenda of labour rights on employers all those years ago. The somewhat violent assertion was more to serve notice to the Greek government that they were anything but amused at the decisions to raise taxes, freeze pay and bring about crippling spending cuts. It was one the first public expressions of what the next three years are likely to bring to Greece. As this piece was written the violence continued to smoulder. Over 120 deputies were absent in parliament when the stringent cut motions were approved and passed. It sends a message that, if anything Greek politicians are divided on the issue to taking their electorate through such crushingly hard times. The situation was desperate enough to warrant a change of rules for the Euro central bank to accommodate the Greek proposal. Given that the IMF almost always imposes strict conditionalities on such loans there could be further measures imposed. The general fear is that austerity cuts will further undermine the recession-hit economy. The Greek Finance Minister has ruled out any prospects of debt restructuring or leaving the Euro zone. One potent reason being that the interest rate on Greek's 10 year debt has now reached a staggering 9.116 per cent.
More importantly Europe needs to take a fresh look at itself and ask some probing questions. Was the expansion of euro zone fast-tracked too much? Were there compromises made in relaxing rules for admission? And indeed, was the UK correct all those years ago in its decision not to join the common currency. As it stands, the hung-parliament likely to be headed by the Conservatives-known for their anti-common currency stance-will have to compromise too. The UK too has a hefty debt that will require borrowing to fund and the last thing the country needs is to have wary investors losing confidence in their government.
A weak Europe has consequences that will impact the world. Even the US, silent during the Iceland and Ireland crises, came out to suggest that something needed to be done to assist Greece. Can the EU stand up to the US on trade issues as it has done in the past? What too will be impact on consumption when people's pay is frozen or cut, on countries such as Bangladesh that have so much exports to those countries? Time will tell us. For now, perhaps preparation to focus on such times is urgently required.
(The writer is a former Head of Corporate & Regulatory Affairs of British American Tobacco Bangladesh, former Chief Executive Officer of Bangladesh Cricket Board and specializes in corporate affairs, communications and corporate social responsibility. He can be reached at e-mail: mahmudurrahman@gmail. com)