Greece’s path ahead bears a striking resemblance to ‘the bridge of fools’


Reuters

By Stella Dawson–The isosceles theorem put forward by the Greek mathematician Euclid became a test in medieval times of one’s ability to master more difficult matters. Greece this week faces such a test.

It must convince the European Union, the International Monetary Fund (IMF) and the European Central Bank (ECB) of three things: fiscal measures will put its debt load onto a sustainable path heading toward 120 percent of gross domestic product by 2020; Greek politicians will abide by deep budget cuts even after their April elections; and a 200-billion-euro debt swap with private creditors can be completed by March 20, the deadline for Greece to make 14.5 billion euros in debt payments. Only if Athens meets these tests will Greece win a second round of international loans from the EU and IMF to avert a disorderly default, financial officials say. A decision is expected on Monday when eurozone finance ministers meet. Clearing this hurdle would open the way for Greece to take on the still more difficult task of restructuring its economy — far beyond the initial steps it has taken so far. The urgency is painfully evident. The latest data shows its economy in a freefall. GDP contracted at annual pace of 7 percent in the fourth quarter. Economists forecast a similar plunge in 2012. Unemployment is 21 percent and half of its young people under 25 are out of work. Richard Parker, professor of public policy at Harvard University and an adviser to the Greek government until December, said Greece has to reform its family-based business and retail sectors and overhaul its wage and cost structure to make its primary industries, tourism and shipping, internationally competitive — a process that can often take decades. “Because there is not a growth plan — austerity is not a growth plan — Greece faces a long, dark path,” he said.

While Greece might avert a March default, its economy is unraveling so fast that new funds may only delay its collapse by a few months, Wall Street analysts said. Northern European politicians are equally skeptical. Germany’s finance minister, Wolfgang Schaeuble, calls Greece a “bottomless pit.” Greeks angered by German demands are burning effigies of Chancellor Angela Merkel in Nazi uniform.

“Political tensions in Greece, and between Greece and the rest of Europe, may have reached a point of no return,” said Erik Nielsen, global chief economist at Unicredit. “Short of a big pro-reform, pro-Europe vote at the Greek election in April, the program may run off track within months, which could well cause Greece to start an unintentional and messy exit from the eurozone,” he warned clients. In the meantime, major central banks are taking no chances, given a tentative global economic recovery. Although the U.S. economy has shown signs of strength recently, with surprising improvement in the labor market, Europe is still seen flirting with recession after the eurozone economy contracted in the fourth quarter. Some central banks have quietly unleashed a fresh flood of money in recent weeks.