Beware the Greek bearing lessons

The Greeks risk running out of money in July. The impending predicament has that country facing repayments of more than €6 billion in July with grave doubts over whether it would be able to make these without help or restructuring of the debt. The country’s main creditors in Europe continue to demand harsh budget cuts as a condition for crucial loans. We need to put this in the context of Eurozone countries most likely missing a self-imposed deadline due next Monday to agree on aid measures for Greece. In addition, we need to remember that it has now been ten years of failed efforts to “save” Greece. Perhaps Germany, the other European nations, and the International Monetary Fund, should use a different strategy that gives prominence to reviving the economy as a major priority.

It is noteworthy Greece’s creditors seem desirous to provide new loans to pay off debts due this year.

The condition set, however, is the country must commit to attaining a fiscal surplus of 3.5 percent of gross domestic product (GDP) prior to interest payments in 2018. The IMF, on the other hand, suggested a budgetary surplus of 1.5 percent and that Europe should pledge to decrease the Greek government’s debt, which is about 180 percent of GDP. Interestingly it is also suggested that consideration be given for debt relief to take the form of providing the country with more time to repay.

The Greek annual growth is 0.4 percent. Mandating that the country should run big budget surpluses would be counterproductive. That the European countries think that Greece can achieve these large budget surpluses makes one wonder about the basis for such optimism.

European, IMF and Greek officials must suggest ways to revive the Greek economy, reduce unemployment (23 percent in November) and make the financial system stronger: borrowers of nearly half of all loans are not making payments.

The EU may perhaps consider offering grants and loans for projects that improve the economy.

In addition, the government can improve the efficiency and effectiveness of its tax collection agency. It is only when a recovery takes hold will the government have money to pay back its debts.

European countries by now should be aware that their analysis has been faulty. The strategy they have insisted on that included cuts in spending and raising taxes, has not revived the Greek economy, and makes Greece dependant on their financial support.

Here in Trinidad and Tobago, we need to think long and hard before increasing the debt to GDP ratio, especially as the energy sector appears in terminal decline. We need to see that borrowers are not interested in anything else except getting their money back. High debt levels mean spending most of your GDP servicing debt. Investment and stimulation of the growth potential can only occur when a country has the resources or can access resources. High debt levels seriously inhibit investment and curtail the fiscal space thus reducing expenditure on vital services like health and education. Borrowing for recurrent expenditure on the hope that a sector in terminal decline will recover is, in polite terms, madness.

There has to be serious dialogue with the country about our future - let us not forget and at the very least, learn from Greece.