THE €110 billion loan package agreed by 16 euro zone governments and the International Monetary Fund (IMF) to help Greece to avoid defaulting on its debt has failed to impress financial markets because of doubts about that country’s ability to implement associated austerity measures. Nor have the onerous terms and conditions attached to the loans reassured the Greek public, as demonstrated by violent street protests.
It is against this highly unstable background that euro zone leaders meet in Brussels today to sign off on the bailout and to address what has become a European sovereign debt crisis. If saving Greece was the priority last week, the challenge has intensified in the days since: to save other euro member states (Portugal, Ireland, Spain) from a contagion effect where the loss of market confidence in Greece spreads outside the country. As Nobel laureate economist Joseph Stiglitz warned this week: “The Greek financial crisis has put the very survival of the euro at stake.”
In what is only the second euro zone summit in the currency’s 11-year history, political leaders must show they are in control and that they have learned lessons from their collective mismanagement of the Greek bailout. They initially stood aside for too long and also refused to accept any IMF involvement – as Greece edged towards financial collapse – before belatedly agreeing to a joint loan arrangement. And with German voters strongly opposed to providing loan assistance, the German government seemed more concerned with a domestic political challenge – state elections in North Rhine-Westphalia this weekend – than with addressing Greece’s financial difficulties.
French president Nicolas Sarkozy and German chancellor Angela Merkel have backed a proposal from the Luxembourg prime minister Jean-Claude Juncker for stricter rules governing how euro countries manage their public finances. That has won support from Minister for Foreign Affairs Micheál Martin who cited the Greek crisis as an illustration of the need for greater scrutiny by the European Union of the national statistics of member states. This would help prevent the falsification of statistics as happened in Greece where budget figures were fraudulently distorted. But a more far-reaching and urgent reform programme needs to be introduced to stop a European debt crisis spiralling out of control.
Minister for Finance Brian Lenihan has insisted Ireland is not at risk from fallout from Greece, not least because of the Government’s willingness to take tough decisions to achieve fiscal consolidation at an early stage. Exchequer returns for April show spending and revenue in line with forecasts and offer some modest encouragement. As does the European Commission’s upward revision of its growth forecast for the Irish economy next year to 3 per cent.
Nevertheless, with Ireland’s cost of borrowing at a record premium yesterday – 2.7 percentage points over the German benchmark rate – there are no grounds for complacency in what remain challenging times.