By Pradyut Hande:
With the global economy still charting a shaky and nebulous path towards plausible protracted stability, there are certain facts that have become most apparent. Hence, it becomes imperative for policy formulators to take cognizance of these hard facts (read ugly truths) moving forward, no matter how unpalatable they may appear. For a while now, the holistic Euro zone economy has had to grapple with numerous economic and non-economic impediments to register acceptable levels of growth. However, off late non-performing economies such as those of Greece, Spain, Italy and Ireland amongst others; have placed a veritable and steadily enhancing financial burden on the other established “regional heavyweight economies” in the European Union (EU) of Germany and France. They are the leading powers in the 17 nation strong Euro zone and hence, their proactive stance and approach with regards to alleviating the concomitant ramifications of the current sovereign debt crisis assumes even greater significance.
The European nation of Greece may have marginally improved its economic performance over the last quarter, but is still far from fulfilling its deficit targets. For a while now, Greece has lived out its “financial tragedy”, precariously skirting the precipitous edge of plausible bankruptcy. In a recent development that promises to offer temporary relief to its crippled economy; the European Union (EU), the International Monetary Fund (IMF) and the European Central Bank (ECB) have agreed to an Euro 8 Billion bailout loan tranche that will be paid in early November, 2011 after approval from the Euro zone Finance Ministers and the IMF. Representatives from the aforementioned bodies made the announcement following a week long inspection of the country’s finances.
The bailout loan promises to provide the “resource starved” Greek economy a fresh economic impetus in its ongoing “crusade” to stave off bankruptcy and market volatility. Hence, it couldn’t have come at a better time. However, the truth is that, the package only promises to provide transient relief and there is a growing concern that a second Greek bailout agreed in July, 2011 maybe insufficient to meet its pressing financial needs. Ergo, policy formulators are working towards drawing up an action plan to significantly beef up the currency bloc’s rescue funds and bolster its stuttering banks. Despite setting relatively achievable deficit targets, Greece’s economic performance is characteristic of patchy progress, especially in light of meeting the terms of the bailout agreed to in May, 2010. Set in this tenuous background infused with a palpable degree of capriciousness, it is imperative that Greece pursues a carefully calibrated course of economic reform with greater emphasis on structural reforms in the public sector and the economy as a whole, on a broader spectrum. According to the powers that be that are closely monitoring the situation, additional measures need to be undertaken to meet debt targets in 2013 and 2014. There needs to be a renewed accent on widespread structural reforms and privatization drives.
The Greek maybe sighing in momentary relief, but the economically debilitating sovereign debt crisis that the Euro zone economies find themselves in, is proving to be difficult to collectively negotiate. There ought to be a more comprehensive strategy in place; underlined by both short and long term objective formulation, alignment and implementation at multiple levels. The debt crisis has gradually transformed from a regional “economic aberration” into an increasingly systemic crisis that not only threatens the stability of troubled individual economies, but also has the capability of encumbering and endangering the stability of the Euro zone collectively. Taking cognizance of the well documented “ripple effect” that crises such as these tend to unleash, holistic global economic stability is also at stake here. The concerned authorities and policy makers have prudently realized this bitter truth. However, the dawn of realization now ought to be followed with a concrete strategy underscored by proactive and decisive actions in order to prevent the plausible spread of “exacerbated financial contagion”, especially in the EU. Time is of the essence at this critical juncture and the interests of all stakeholders would be best served if the Euro zone’s financial watch dogs act with “calibrated alacrity”.