Our interest in Greek saga

On the financial front, Greece took centre stage last week, with an insurmountable problem to solve. The ever-increasing burden of the public debt, now standing at 175 per cent of the Gross Domestic Product (GDP), and its 25 per cent cut in its GDP since the beginning of the crises, with a similar figure of 25 per cent as to the level of unemployment, led to the imposed 4.5 per cent primary budget-surplus target beginning to look like the peak of Mt Everest.

The Greeks could not see any light at the end of the tunnel and decided to initiate a civil, though democratic, revolt led by Syriza, demanding an immediate end to this nightmare. The new government admitted openly that its mandate was to “cut the Gordian knot”, not to unloosen it.

But this meant another significant haircut on a sovereign debt by sovereign lenders, on top of three previous debt restructurings: one significant haircut suffered by the main European bankers including those in Cyprus; one to extend the maturity date of the eurozone loan and one to reduce the interest rate on this latter loan.

On top, one was whispering about the need for an injection, likened to the Marshall Plan.

Unfortunately, the Eurogroup members were generally not in the mood for such largesse and some were also annoyed by the style of the approach itself for various reasons.

The Eastern European countries, who have suffered stoically deep cuts in their GDP during their own banking crises, were not impressed by the claimed sacrifices made by the Greeks.

“What the new government finally won in the Friday meeting is to be given the choice of choosing its own medicine”


The programme countries, which include Ireland, Portugal and Spain, were annoyed that one particular fellow programme country was asking to be treated differently. The servicing of their debts was not lower than that of Greece.

Finally the rest of the Eurogroup were taken aback when told that their solidarity money, lent by a legally binding contract, could be wiped out at the whim of an electoral mandate in the receiving programme country. Among this group was Malta itself.

There is wide agreement that the eurozone architecture needs a rehaul with more emphasis being put on growth-friendly consolidation and wise use of flexibility. After all, the recipe has not worked or has not worked as fast as its designers and implementers had initially thought. At least not in Greece.

But this overhaul could not be carried out over a weekend.



 It was, therefore, the job of well-meaning member countries in the group and their resourceful president, to provide a bridge to the Greeks to convince them that accepting a six-month (later reduced to four), extension of the programme does not mean the end of their dream of changing the austerity course.

One needed more time for a change of direction. More importantly, this change needed the support of at least sympathetic member states in the group.

The reason is not to be sought in the medicine itself which, technically, can also be a subject of controversy and academic discussions but in the disposition and physical make-up of the patient him/herself. Some of the best medicine provides negative reactions in certain patients, even going so far as killing them.

It is very hard for successful countries like Germany and other Northern European countries, whose dose of bitter medicine was taken with so much boldness and relative success, that this could not be prescribed for Greece too.

It is true that where sovereign debts and fiscal deficits are out of control, fiscal consolidation followed concurrently by major reforms have to be the order of the day, especially when other economic alternatives such as devaluation or perhaps default are being ruled out by the nature of the Eurogroup itself.

But a country which has in the past found its competitive equilibrium by a successive series of automatic devaluations could not easily switch to a system where a government was expected to take the bull by the horns.

That meant staring the corruption issue in the face, dismantling professional and business cartels, plugging all taxation loopholes, reducing the public sector and pushing society in general to live within its means.

All leading to an internal devaluation which then is expected to lead to competitiveness and thus growth.

What the new government finally won in the Friday meeting is to be given the choice of choosing its own medicine, a list of reforms which – once scrutinised by the institutions and approved by the Eurogroup – would give the Greek people a degree of discretion, flexibility and independence, while safeguarding the overall conditions which creditors the world over would expect in order to guard their own loaned money.

Will this work? Difficult to say. For sure, the Greek saga is expected to continue being played like a game of snakes and ladders, with a number of steps forward and some unfortunately backwards.

However, for all Europeans, Malta included, it is more than a game. It is a lesson to be learnt on how solidarity now and in the future has to be managed within the eurozone family by both the creditor and the debtor countries.

Both need to gain for the game to continue.

In this regard, Malta, as a member state of the Eurogroup and in spite of its size, has definitely an important role to play.


Tuesday  24th February 2015 




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