GREECE NEEDS “time and serenity” to carry out major financial and economic reforms, the prime minister, George Papandreou told his parliamentary colleagues yesterday, as striking public transport workers blocked the streets of Athens. They were protesting at the public pay and spending cuts that the government has introduced to tackle Greece’s mounting debt crisis. But time is not on Greece’s side.
Tougher austerity measures are urgently required and these are very unlikely to be borne with stoic serenity by the public. Almost two-thirds of Greeks, according to a recent opinion poll, were opposed to their government requesting loan assistance from euro zone members and the International Monetary Fund (IMF). Yet, without that promise of financial support, Greece would be much closer to defaulting on its debt and would be unable to raise enough money to secure its solvency.
Some worrying uncertainties remain about aspects of the financial rescue package for Greece, and not merely the negative reaction from those the bailout is intended to help. Will the €45 billion sum proposed be sufficient? Some economists say a far larger amount – €145 billion over three years – may be required. And in Germany, some 86 per cent of people are opposed to their country lending €8.4 billion – its share of the Greek rescue package
Many Germans feel that a country that falsified its national accounts and broke EU rules should not be rewarded for bad behaviour. Chancellor Angela Merkel is insisting the Greek government adopts a much tougher approach to resolve its fiscal crisis. And, as Greece must meet a substantial repayment to bondholders by mid-May, the rescue package needs to be agreed quickly.
Greece’s fiscal difficulties and the delay by euro zone members in completing the terms of its financial rescue package have weakened the euro. Its credibility as a global currency has suffered and doubts about the euro’s future have been raised. As Greece has lost the support of international financial markets, investor confidence in some of the other peripheral economies, including Ireland and Portugal, has declined also. One worry from an Irish perspective is any contagion effect stemming from the Greek crisis, where nervous lenders demand a higher interest rate premium from those euro zone members where there is doubt about the ability of governments to restore balance to the public finances.
Ireland’s borrowing costs have risen in recent weeks but it has not found itself in that position. Chief executive of the National Treasury Management Agency (NTMA) John Corrigan argued in London yesterday that Ireland can “easily” weather the Greek fallout. Ireland has completed nearly two-thirds of its funding programme for 2010 and the NTMA retains substantial cash balances to withstand any short-term market turbulence. Unlike Greece, Ireland has retained international investor confidence by adopting a credible plan to reduce borrowing. However, adverse domestic developments, like rejection of the Croke Park deal by public service workers, could dent that hard-won status.