The Greek growth drought is a real threat to EU By Mark Gilbert and Marc Champion, Bloomberg News Bloomberg So Greece has elected a new anti- austerity government and, as of this writing at least, the nation remains in the euro, financial markets are calm, and the world continues to revolve around the sun. Now comes the hard part. The Syriza partys rise to power on pledges to halt spending cuts and renegotiate Greeces debt burden doesnt necessarily spell the disaster that scaremongering claimed it would. To control sufficient seats to form a government, Prime Minister-elect Alexis Tsipras is teaming up with the Independent Greeks, whose lawmakers are vehemently in favor of a debt write-down. Hes entitled to build a coalition that reflects the electorates appetite for change; but hell still need to parley carefully with the nations paymasters at the European Union, the International Monetary Fund and the European Central Bank. The task facing the currency unions leaders is to prevent the economic discomfort evident in the Greek election outcome from metastasizing. Europe needs to seize the opportunity provided by Greece to make a wider change in its policies, Thomas Piketty, the French economist and author of the bestselling Capital in the Twenty-First Century told France Inter radio on Monday morning, and hes right. ECB President Mario Draghi took an enormous gamble with last weeks plan to introduce quantitative easing, buying more than 1 trillion euros ($1.12 trillion) of bonds to boost his balance sheet and funnel more cash into the economy. His efforts become even more of a crapshoot without a corresponding initiative from euro governments to do more to avoid slumping back into recession. It would be unwise to allow even the appearance that the blocs weakest and most fractious member is setting economic policy for the entire collective -- even if the new direction it chooses is the correct one. So the leaders of monetary union should seize the initiative first and change course for the bloc themselves, citing the deteriorating outlook for growth and inflation. The post-crisis pursuit of economic discipline needs to be softened to acknowledge the need to do more to boost growth, and not just because thats what voters elsewhere, notably Spain, are likely to demand. The EU needs to publicly acknowledge a change of tack; which means German acquiescence to a more fiscally relaxed future. Greece will need some special treatment to keep its economy afloat; more than 4 billion euros left the countrys banking system this month, adding to Decembers 3 billion euros of withdrawals and leaving about 157 billion euros on deposit. A run on the banks is a clear and present danger. National debts of more than 170 percent of gross domestic product are clearly unsustainable; if Greeces official lenders cant stomach a write-off, then at least lengthening the repayment periods and reducing interest rates would give Tsipras a victory with which to appease his supporters. But its the underlying state of the euro regions economy, not the twitching of the Greek electorate, which should motivate EU leaders to recalibrate their policies. Data later this week will probably show that consumer prices dived by 0.5 percent this month, extending Decembers 0.2 percent slump. With Draghi sufficiently concerned about the outlook to corral his fellow policymakers into agreeing to buy 60 billion euros of bonds a month for the foreseeable future, politicians need to do their bit. Otherwise, as the Greek election shows, they may find themselves out of a job -- and rightly so. _ — Mark Gilbert is a Bloomberg View columnist and a member of the Bloomberg View editorial board. Marc Champion writes editorials on international affairs for Bloomberg View. chicagotribune/news/sns-wp-blm-news-bc-greece-eu-comment26-20150126-story.html
Posted on: Mon, 26 Jan 2015 15:12:24 +0000
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