It always happens with politicians, you get ‘compromise’. And it’s exactly what’s happened with the latest Greek bailout. Rather than the much needed bazooka to deal, with the problem we’ve ended up with the usual indecisive and ineffective compromise, which only results in a short term solution.
If politicians had just had the guts to commit a bit more support we might have had a real resolution. As it is Greece is left mired in uncertainty. It is extremely likely a further bailout and/or default will be needed.
Even under the optimistic baseline scenario of the current deal Greece will still be at a debt to GDP ratio of 129% by 2020. That’s 8 years away and still well above the 120% considered unsustainable.
And what reasons are there for thinking the baseline will come true. Greek growth was far worse than expected last year at -6.1%. Greece has never been able to successfully implement the required reforms in the past. If Greece misses its growth targets by just 1%, a scenario which seems highly possible given Greece is expected to grow by a rosy 2.3% in 2014 (despite severe austerity measures), all other factors being equal Greece will have a debt to GDP ratio of 159%. Virtually the same as it has now! And if Greece doesn’t return to growth the consequences don’t bare thinking about. One bad number in the next 8 years would knock everything of course.
This bailout will not offer any confidence for business. The Greek people are already furious. How will they be after another 8 years of severe austerity with no or little progress on debt? Even if they achieve the baseline and get back to 129% debt to GDP they are still left in a dire position.
Once again the policy makers have found the worst option. Short term thinking politicians are pandering to their electorates and only thinking of their upcoming elections.
To set a date for default, take ownership of the problem and leave the Euro would have been a better option for the long term for both Greece and the Euro.
Even better a bigger bailout designed to knock Greek debt to GDP ratio back below 100% would have inspired confidence. Businesses would not be so afraid to invest. Greece might have even been able to sell some of its assets to the private sector for a reasonable price. This was an affordable solution. Unfortunately the German tax payer and others refuse to pay.
At some point either the Germans or the Greeks are going to say enough is enough. NO MORE BAILOUTS. It is likely that Greece will default again and leave the Euro anyway. But instead of doing it now and beginning the recovery we must drag on with the worries of Greece weighing on growth and confidence throughout the whole of Europe.