Europe In Debt - The Unfolding of Greek Tragedy
Debt crisis in Europe which cast its ominous shadows throughout the last is still giving sleepless nights to all those matter in the management of global economy. What all started from Greece has spread to other nations of the European Union. In fact, the crisis has remained so intractable that the very foundation of EU as one economic entity has been badly shaken. News which are not trickling but rushing in are that Greece may not be the only country guilty of this gross financial profligacy. The financial health of other European biggies are not really in the pink! This Greek tragedy is turning out to be a European one! Europe is struggling very badly and is currently in the throes of one of worst economic crises. There is not even a glimmer of hope of a short-term recovery.
The world of finance woke up to the shocking reality of Greece in life-threatening debt and spasmodic response was to fix the problem with liberal doses of bail-out packages on the part of other European nations. But the true dimension of its requirement was alarming enough - 15 billion Euros! A debt is a debt - which has a sinister cumulative nature. Burdening a nation which is already reeling under its current debt with future debts of such a whopping kind is nothing but a prescription for death! With new cousins of Greece in the form of Portugal, Italy and Spain - Europe's current economic misery showing no sign of easing off. The consequent social turmoil and unrest may gravely impact global stability and future progress and development. Even some of the nations like France and Austria which were thought to remain unscathed by this unprecedented crisis are coming under close scrutiny. S & P has downgraded French debt from AAA rasing the interesting question of France's own ability to bail out the debt-ridden European nations!
Now coming to the issue of finding a solution - a task which looks like trapping a cat in the dark! The wise heads of the European Union have been holding countless numbers of deliberations and discussion to emerge as confused as baffled as ever before. Each and every time they are putting their heads and minds to the problem, they get rude shocks over the kind of economic profligacy that has engulfed the entire physical boundaries of Europe. Living beyond the means seemed to have been motto of these nations for too long. Infusion of fresh debts into the debt-ridden nations raises the central question as to how long it would takes these nations to come out of debt and stand on their own. For example in the case of Greece all attempts to find a time-horizon have failed. It is clear enough that choices before these nations are too limited and their societies are destined to go through the convulsions of painful restructuring before things can come back on rails! No soft option or palliative would work in a situation like this and the sooner it is realized by the leaders of these countries the better!
A serious study of the grave debt crisis which some of the European nations notably Greece,Belgium,Italy,Spain others centre around three principal issues which demand immediate attention and whether these nations would eventually and successfully come out of this crisis would depend on their solution. It is evident that the imbalances which crept into the financial and economic systems have to be dispassionately dissected and corrective measures, however painful these may be, may have to be taken to restore any semblance of normalcy. The mounting volumes of debt with yawning deficits are not something to be papered over.
The three concern areas mainly relate to the shocking poor health of most of the banks which are tottering over the threat of insolvency and the second the threat of poor growth and the chronic trade imbalances arising out of poor growth. These are interlinked and evident to any discerning eye and can not solved in an exclusive manner. It demands a holistic approach. Looking hard at the finances of most of the European banks, it quite clear that these banks do not have wherewithals having invested heavily in the debt of the nations which are in the forefront of defaulting list of countries. The grave implication is that these are not in a position to give any fresh loans. If fresh loans are not forthcoming ,the trade, industry and commerce would be starved of loans - a severe hit which might many mean a reduced level of business-oriented activities. In this vicious cycle the very next consequences of reduced number of jobs, products and services. So the question which should be troublesome to all : Who is going to fund the rehabilitation package? If banks have to be brought back to their normal financial health - it is the government through taxpayers' money! And more importantly mere infusion of funds or restructuring of debt is not going to solve this problem. In the case of Greece, bail-out package is nothing but fresh doses of debt which even pundits are not exact in calculating the number of decades it would take for it to become debt-free! The kind of austerity measures which are being mooted and have already sparked off riots and worse in that country would likely to have critical negative impact on future growth on whose strength the granting of fresh loans and debt-restructuring is based.
The true dimension of the debt of Greek was not initially clear to the European leaders and once it transpired and demands started ballooning,they were in for a rude shock and the leading nations like Germany and France who are expected to play a leading role in saving Greece are all democracies and the leaders of these nations have to be extra sensitive to popular opinions and moods which are distinctly against straining their purses to bail out another nation!!. Greece is faced with prospects of not so liberal doses of economic packages in the form of more debts whose servicing presupposes a reasonable growth in GDP which is any one's conjecture as Germany and France are two big nations exporting all the goods and services to the disadvantage of other European nations most of which have trade deficits. It is clear enough that unless debt-ridden nations are allowed more access in the form of exports of their goods and services to economically prosperous nations, the trade imbalances are likely to remain a perpetual feature of their economies. Here rises the question of validity of the postulate that a debt-ridden nation can be saved by granting liberal doses of debts overlooking their repaying capacity. More importantly, the austerity measures which are being deliberated upon may deal another blow to the morale of the people of these countries. Used to the luxuries that decent wages and salaries which are much higher than that in other parts of the globe, it is real shock of life for the people of these countries. Manifestations of their frustrations and anger can already be seen in street riots and other forms of social disturbances and tension which may pose a grave danger to the stability - a very basic requirement for economic development and progress.
The European debt crisis may have some lessons for India. It is true India is placed very advantageously with a huge economy and a very vast internal market to cushion shocks and surprises but reckless unproductive government spending, trade imbalances, size of subsidies, profligacy on the part of state governments could land us one day in a similar situation. Our fiscal deficit as a percentage of GDP is already something to worry about. What failure to read the right signals on the part of leaders can cause,the current Greece tragedy is a pointer!!
Like it on Facebook, Tweet it or share this article on other bookmarking websites.