'No longer taboo to talk about Greece leaving euro' [ANALYSIS]
World Bank Chief Economist for Asia and Central Europe Indermit Gill: 'Light at end of tunnel'
BRUSSELS - There appears to have been a seismic change in the topics of coffee shop chat here in Brussels. Any discussion about the possibility of Greece leaving the single currency is no longer spoken in whispers behind closed doors – everybody is now doing it at full volume.
“They are talking about it at a very high level, but I’m sure the captain of the Titanic wasn’t talking about the fire drill as he left Southampton on that fateful voyage,” Professor Michael Smyth told me.
Smyth is a hugely respected Irish economist and the President of the European Economic and Social Committee (EESC), and he thinks the EUs sign-off on Greece’s bailout to the tune of €130 billion was a dire mistake.
“It’s another step along the road to the inevitable, I’ve thought this for some time that Greece will default 100% within the next twelve months for sure. On the basis of everything I know, there is no way Greece will ever be able to get itself from underneath this debt mountain.
“This is all about buying some time for European financial institutions to de leverage themselves and to reduce their exposure, not just to the Greek sovereign debt but to the credit default swaps that go with it.”
Just a few hours after speaking with Smyth, the credit agency Fitch announced that it had further downgraded Greece's rating from CCC to C – or junk.
But do these incessant forecasts of Moody’s, Standard and Poor’s and Fitch’s matter anymore? The charismatic Danish economist Hans Martens, who heads the leading European Policy Centre in Brussels, reckons the influence of these agencies appears to be faltering.
“It seems that know body really listens to them anymore, we’ve had these downgrades of particular European countries at around Christmas, the New Year and the beginning of the New Year—but apparently the markets are not listening,” he says.
Furthermore, I’m told that Europe should stick with Greece – because there is light at the end of the tunnel. That was the message from Indermit Gill, the Chief Economist for Europe and Central Asia at the World Bank.
Gill thinks its Greece’s ability to actually deliver on promised austerity measures that analysts will be watching and any thoughts of Athens abandoning the euro should be dismissed.
“If you see clear indications of structural reforms, I am confident the other countries in Europe will come to their help,” he explained.
“You don’t actually have to do this overnight; you will get the time to actually do this well. But this is a special feature of Europe, and the Greeks are fortunate that they are part of Europe in that sense. Is the Euro the cause of problems in southern Europe? My answer is no – you have to change your economic structure rather than your currency.”
However, getting the European economy back on track is not all about bailouts and quick fixes. It’s about leadership and direction according to Simon Tilford, the Chief Economist at the Centre for European Reform. In his opinion, the problem is made far worse because of differences of opinion within the EU leadership about how the crisis started and more importantly how to fix it.
“Well clearly the strategy towards Greece has failed, so the ‘creditor camp’ that have pushed fiscal austerity as pretty much a panacea for everything - have failed in Greece. That explains the almost orchestrated camp to portray Greeks as hopelessly venal and incompetent and uniquely awful – because if their not, if they are anything but that, then that calls into question the strategy that is still in place across Europe as a whole.”
European Commission Deputy Secretary Michel Servoz thinks that those criticising the measures being taken by European leaders should think twice. He explained that the EU is pursuing growth, restoring normal lending by banks, promoting competitiveness, tackling unemployment and even modernising public administration. But what is most important?
“Well, there is not one which is at the top of the list, fiscal consolidation is clearly something which is extremely important in the current circumstances and at the same time the priorities we have on growth and unemployment which are really the main points of focus,” he told me.
As for Simon Tilford, he is increasingly concerned that it is just a matter of time before more rescue money for Greece will be needed, in addition to the bailout agreed on 20 February.
“The latest package shows quire clearly that Greece is insolvent, under any realistic assumptions – for economic growth, for the Greek authorise abilities to push through reforms – for everything its insolvent. There is absolutely no way the Greek economy can service anywhere near the levels of debt that are foreseen under this latest deal, so this will be revisited – there is absolutely no doubt about this – it will be a matter of months.”
Michael Smyth agrees, insisting that a radical rethink on the way the current crisis is being handled by EU politicians is essential to avoid the situation worsening.
“Austerity must be the order of the day for those countries that have received public money for bailouts, for the rest of Europe I think it’s time to change course, and you know the balance of risks have shifted towards spending some more money and getting some growth going – giving people some hope. After all, in a democracy why do you elect a government?
“You elect a government to serve the public interest – with respect I don’t think Europe, and Europe’s leaders are serving the public interest by insisting on budgetary austerity.”
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