Wednesday October 22, 2014 Search
Weather | Athens
24o C
14o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
It's too soon for Europe to declare victory

By Mohamed A. El-Erian

There was a time not so long ago when the vast majority of experts agreed that a country could not emerge decisively from a financial crisis unless it solved problems of both “stocks” and “flows” -- that is, secured a flow of money to cover its immediate needs and found a way to manage its stock of outstanding debt over time.

In Europe today, this conventional wisdom appears to be fading. The temptation there is to declare victory having solved only the flow, not the stock, challenge.

The flow/stock intuition is quite straightforward. In the first instance, a crisis-ridden country must generate enough resources to meet its pressing funding needs, and do so in a manner that does not erode its growth potential. Soon thereafter -- or, even better, simultaneously -- the country needs to realign its longer-term payment obligations in a manner that is consistent with both its ability and willingness to pay.

Unless a country does both, the productive commitment of its own people and companies will be too tentative to drive a full and proper recovery. It will also be a lot harder to attract the scale and scope of long-term foreign direct investment that is so helpful for enhancing growth, jobs and national prosperity.

The need for a comprehensive approach was most vividly illustrated during the Latin American debt crises. Having secured sufficient emergency financing and embarked on serious economic reform efforts, the successful countries devoted lots of effort to improving their debt maturity profiles, better aligning the currency composition of their debt and, most important, reducing the size of their contractual obligations. These efforts were instrumental in productively re-engaging the domestic private sector and in attracting sizable foreign investment.

Peripheral countries in the euro area -- such as Greece and Portugal -- have done a lot to deal with their flow challenges over the last few years. They have also made some progress in addressing stock challenges, yet quite a bit remains to be done.

Consider the case of Greece. Serious and difficult multiyear efforts to cut deficits and reduce inefficiencies have significantly improved domestic finances. Indeed, Prime Minister Antonis Samaras stated in a recent interview: “We have no fiscal gap, we have no financing gap.”

By improving the maturity of its debt service payments, Greece has also started to address its stock challenges. But its stock of sovereign debt is still hovering at 180 percent of gross domestic product -- an excessively high level for a country wishing to grow quickly, if only to be able lower its 26 percent unemployment rate and even more alarming youth joblessness of well over 50 percent.

None of Greece’s regional and multilateral friends -- be it the European Commission, the European Central Bank, the International Monetary Fund or Germany -- has much desire to highlight this stock issue, especially as their loans may be among those mentioned for some type of forgiveness.

Greece averted a much bigger economic and social disaster thanks to its willingness to step up courageously and provide massive emergency financing. It is understandably hesitant to go back to its stakeholders -- many of whom initially opposed the lending -- and suggest that the loans should be forgiven, even partially.

Don’t look for private creditors to make much of a fuss, either. True, new and prospective creditors would be more secure if part of the old debt was somewhat extinguished. But with Greece's immediate flow issues resolved, and with the central banks around the world holding interest rates at low levels, they are just thankful to be able to invest in higher-yielding, short-maturity Greek bonds. Older private creditors, for their part, have already suffered a round of deep debt restructuring.

As mutually reassuring as all this may sound to the parties involved, the collective obfuscation will do little to solve Greece’s need for many years of high economic growth to make a lower debt burden more bearable. No wonder Samaras is insisting on Greece’s euro-area partners “keeping their part of the deal,” made in 2012, to provide further debt relief to his country once its budget -- excluding interest payments -- reaches surplus. He will need to do a lot more insisting now that European leaders and markets have lost their sense of urgency. And they will look for him to do a lot more domestically.

[Bloomberg]

ekathimerini.com , Wednesday April 23, 2014 (14:23)  
Careful what you wish for
Taking care of our key industry
The ECB collateral for Greece must be lowered to 5 pct
The past, present and future of the Greek debt crisis
EU´s Juncker pledges investment plan for jobs
The incoming head of the EU executive, Jean-Claude Juncker, told the European Parliament on Wednesday that he would present his 300-billion-euro plan for investment to bolster growth and job...
Cyprus to block Turkey´s EU talks after EEZ violation
Cyprus has said it will block any progress in Turkey's EU membership talks in response to a violation of its exclusive economic zone (EEZ) by a Turkish survey vessel. “We cannot consent to t...
Inside News
Prudential holds on to shorter-maturity Greek bonds amid selloff
Prudential Financial Inc. held on to its Greek government bonds that are due in five years or less even as the nation’s securities last week dropped the most in a year. There’s a good chance...
Taprantzis resigns from privatization agency TAIPED
Andreas Taprantzis has stepped down as executive director at Greece's privatization agency TAIPED, a statement said Wednesday. The reasons for his resignation were not made public. TAIPED sa...
Inside Business
BASKETBALL
PAOK fans stop coach Markopoulos´s move to Olympiakos
Olympiakos is once again in the lookout for a new coach after the refusal of PAOK to release Soulis Markopoulos, while Panathinaikos defeated Kolossos on Rhodes on Monday to become the only ...
BASKETBALL
Reds lose to Nea Kifissia, search for new coach
Nea Kifissia recorded the biggest win of its short history in the top flight defeating Olympiakos 68-67 on Sunday, in a Basket League weekend marred by the abandonment of the Thessaloniki de...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Prudential holds on to shorter-maturity Greek bonds amid selloff
2. EU´s Juncker pledges investment plan for jobs
3. Taprantzis resigns from privatization agency TAIPED
4. Cyprus to block Turkey´s EU talks after EEZ violation
5. Juncker’s EU commission team set for parliamentary green light
6. Credit sector officials sleeping easy ahead of stress test results
more news
Today
This Week
1. Juncker’s EU commission team set for parliamentary green light
2. Cyprus to block Turkey's EU talks after EEZ violation
3. Taprantzis resigns from privatization agency TAIPED
4. EU's Juncker pledges investment plan for jobs
5. Prudential holds on to shorter-maturity Greek bonds amid selloff
6. The past, present and future of the Greek debt crisis
Today
This Week
1. Possible third figure in Amphipolis mosaic may be uncovered shortly
2. Istanbul skyscraper casts shadow over Greece's banking ambitions
3. Coalition shooting itself in the foot
4. GPO poll gives SYRIZA clear lead over New Democracy
5. Greece must stick to reforms, says Schaeuble
6. Greece’s closed society is central to its current malaise
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.