The world economic crisis is jumping from one point to another but there are few signs of it abating. The Greek crisis remained the top concern of economic watchers around the world. In the wake of the EU bailout announced a few days ago, some pertinent questions have risen concerning the correctness of the massive bailout of $157 billion. The details were announced in a joint press conference by Herman Van Rompuy, European Council President and Jean-Claude Trichet, European Central Bank President. Greek debts were given relief of rescheduling from 7.5 years to 15 years and extendable to 30 years if there shall be the need for that.
The rudiments of market economy are probably no longer followed by the economic systems that proclaim the principles of market economy as essential tools of policy. The arrangement was termed by the European Council as ‘unique’ and that Greece was in ‘restricted default’. The Council President was rather explicit that there were equally important political reasons as economic ones when the bailout package was finally agreed upon. It is indeed surprising as to how a small economy of a country can jeopardise the world economic system. Greek’s GDP is just about 0.5 per cent of the world but its collapse was being equated with the financial woes of the US.
The banks, insurance companies and large pension funds of leading European countries hold equities not only in the Greek bond market but also in its private banks. The Swiss who are pioneers in international banking were equally wary of bringing in the private sector for the bailout. Earlier, the EU was busy gathering information from the finance ministers of the euro zone, the exact figures of creditor’s dealing with the Greek clients by the private sector of the respective countries. The details of the bailout have not been fully given out. The extent of the private sector’s role is yet to be revealed.
Further, the lending capacity of $609 billion of the European Financial Stability Fund was not considered as large enough if countries like Italy or Spain falter. The economies of Greece, Portugal and Ireland, all put together are just about half of Italy’s economy. Any crisis in a relatively larger economy shall render the entire exercise fruitless. Economies around the world have been trapped by IMF conditions. But it is not just the developing countries that were overwhelmed by these concerns. International economists are equally worried about the world’s largest economy. The money fund managers in the US have 50 per cent investment of their $1.6 trillion funds in European banks. If the crisis in the euro zone worsens, it is likely to affect the world economy, experts argue.
It is indeed a moment to reflect on the state of the world economy, especially at a time when Asian economies are making strides that were unthinkable twenty years ago. Other than the US, there are many equity holders in the European market. Similarly, there are large investors from Asia in the US economy. These financial investments, not explicitly discussed, would be playing a pivotal role in determining the economic health of the world economy. Meanwhile, Swiss concerns about the involvement of the private sector require some consideration. The European Council did also announce the monitoring of the top Greek private banks by the EU managers at Brussels. Experts around the world are busy deciphering the bailout if it is not undermining Greek sovereignty. Till recently, the protests and burning of tyres in the streets of Athens were a testimony to the phenomenon. The economic woes of Greece were due to particular reasons of its internal economic realities. It is hoped that with this bailout Greece’s problems do not become magnified and begin to throw longer shadows on the European continent.
The writer has served as consultant to the United Nations and other developing economies on the issues of trade and development and can be reached at [email protected]
