What to do with Greece? It’s a question that will likely be remembered for dominating discussion in 2012.
“Despite a courageous public stance by the International Monetary Fund, European officials failed again on Tuesday to deal with the critical issue of Greece’s debt sustainability,” PIMCO chief Mohamed El-Erian begins in an op-ed in Financial Times on Wednesday.
If this continues, he notes, they will undermine yet another bailout package for Greece and suffer further erosion in credibility, especially in the eyes of their own citizens.
“This latest bailout package is meant to improve things: by injecting more money into an economy riddled with payments arrears and virtually no financing for working capital (let alone new plants and equipment); and by accompanying this temporary financial relief with measures to bring the budget under control, re-capitalize banks and expand growth-enhancing structural reforms.”
Though well-intentioned, El-Erian writes that this bailout would likely fail if a major sticking point—Greece’s need for another major debt reduction—remains unresolved.
“The country would thus stay stuck in a recession that has ravaged the country for more than four years. Youth unemployment, already in excess of 50 per cent, would become more deeply embedded. And the social problems would continue, with a particularly devastating effect on the most vulnerable segments of the population.”