Europe and IMF agree €110bn financing plan with Greece
|Greek prime minister, George Papandreou, addressing his Cabinet on Sunday, May 02, 2010|
"In a study done last year, the OECD described government-run Greek hospitals as deeply corrupt. It concluded that we could save 30 percent of the costs, which is enormous....In Germany, a stent for heart operations costs about €500. In Greece it costs €2,000 to €2,500. The fault lies with corruption," -- Greek PM Papandreou in interview with Der Spiegel, Feb 2010.
While a debt restructuring may be required at the end of the 3-year period of the EU-IMF €110bn rescue plan which was agreed last weekend, Greece is likely to be better governed; the European banking system would be in better shape and hopefully reforms of the fiscal shortcomings of the EMU will be in progress. We may even have a common European bond.
The latest to treat Germany as the piñata of the crisis is David McWilliams in the Sunday Business Post: "Greece is the symptom of this crisis, but Germany is the cause...It is only right that Germany pays for the Greek problem, because Germany is the reason for the crisis."
This audacious claim ignores the role of France which has the greatest exposure to Greek debt; two French banks – Crédit Agricole and Société Générale – control Greek banks and the claim that Germany is an outlier because it "prefers to save than spend or invest" also does not stand up. OECD data shows that from 1994, the French household savings rate has consistently been above the German level.
France isn't singled out because it has a current account deficit but critics appear to want German companies, who are operating in world markets, to become less competitive.
Bundesbank president, Prof. Axel Weber, has acknowledged that German enterprises will naturally have to focus more on the domestic market than before the crisis and he said in March that Germany’s export success was based on companies embarking on a “painful, but eventually successful, restructuring process, including innovation, outsourcing, wage moderation as well as a balance sheet cleanup.” He said it should "be noted these were market-based adjustments, neither initiated nor managed by policy makers.”
Either way, peripheral countries have to get their economies in better shape; the biggest challenges are from beyond Europe.
It is easier to identify a problem than propose a credible solution. Germany was prudently governed and undergoing reform when it was partytime for Ireland and other misgoverned countries. These countries squandered billions of euros in German financed EU funding.
In 2003, Prof. Hans-Werner Sinn of the Ifo institute, had a book published: Ist Deutschland noch zu retten? (Can Germany Be Saved?) - - Its blurb read: "Taxes keep rising, the pension and health insurance systems are ailing. More and more companies are going bankrupt or are leaving the country. Unemployment has reached alarming levels. Germany is outperformed by its neighbours. It’s growth rates are in the cellar, and it can’t keep up with Austria, the Netherlands, Britain or France. Germany has become the sick man of Europe. "
In Ireland, Mary Harney disdainfully spoke of being closer to Boston than Berlin and today, German success is the cause of the woes in Ireland, Greece and so on!!!
The admirable thing about George Papandreou is that he readily acknowledges where the principal responsibility for Greece's woes lay.
Finfacts report: Europe and IMF agree €110bn financing plan with Greece
Irish Economy Blog thread