World, particularly the developing countries need to learn a lesson from Greece crisis. Even Country's rich history, abundance of archeological sites, azure skies, and crystalline seas could't save it from bankruptcy.
Given the acute financial crisis, what strike to our mind is what should policymakers have done differently to save country from present crisis?
Undoubtedly, the critical policy mistakes are responsible for the present crisis. It was clear in the first half of 2010, when Greece lost access to financial markets, that the public debt was unsustainable. And unmistakenly, the Greece's sovereign debt should have been restructured without delay.
At the Ouset, Greece quickly needed to write off its debt burden as much as it could do. By 2012, its debt ratio to its GDP was as high as 146 percent. Had this been done, it would have been able to shed its crushing debt overhang. It could have used a portion of the interest savings to recapitalise the banks. It could have cut taxes, rather than raising them. It could have leap-frogged investment to get its economy moving again.
International Monetary Fund agrees that debt restructuring should have been undertaken earlier. But this was not its view at the time. Under the leadership of Dominique Strauss-Kahn, the Fund was in thrall to the French and German governments, which adamantly opposed debt relief.
But, instead of working with its social partners, Greece relied on IMF, European Commission and ECB, referred to as troika's advice, dismantled the country's collective-bargaining system, leaving workers unrepresented. It thus lacked a mechanism to negotiate a social compact to cut wages, pensions, and other obligations in an equitable way.
With every vested interest fighting for itself, closed professions proved impossible to pry open. Doubting that there would be shared sacrifice, those same interest groups were unable to negotiate meaningful tax reform.
It is important that other countries draw the right lessons. If they do, Greece's brave, beleaguered citizens can at least take comfort in knowing that many people elsewhere will be spared the same unnecessary sacrifices.
There is also the intense pressure under which Greek society is now functioning – and the extraordinary courage with which ordinary citizens are coping with economic disaster. Brave people.
Given the acute financial crisis, what strike to our mind is what should policymakers have done differently to save country from present crisis?
Undoubtedly, the critical policy mistakes are responsible for the present crisis. It was clear in the first half of 2010, when Greece lost access to financial markets, that the public debt was unsustainable. And unmistakenly, the Greece's sovereign debt should have been restructured without delay.
At the Ouset, Greece quickly needed to write off its debt burden as much as it could do. By 2012, its debt ratio to its GDP was as high as 146 percent. Had this been done, it would have been able to shed its crushing debt overhang. It could have used a portion of the interest savings to recapitalise the banks. It could have cut taxes, rather than raising them. It could have leap-frogged investment to get its economy moving again.
International Monetary Fund agrees that debt restructuring should have been undertaken earlier. But this was not its view at the time. Under the leadership of Dominique Strauss-Kahn, the Fund was in thrall to the French and German governments, which adamantly opposed debt relief.
But, instead of working with its social partners, Greece relied on IMF, European Commission and ECB, referred to as troika's advice, dismantled the country's collective-bargaining system, leaving workers unrepresented. It thus lacked a mechanism to negotiate a social compact to cut wages, pensions, and other obligations in an equitable way.
With every vested interest fighting for itself, closed professions proved impossible to pry open. Doubting that there would be shared sacrifice, those same interest groups were unable to negotiate meaningful tax reform.
It is important that other countries draw the right lessons. If they do, Greece's brave, beleaguered citizens can at least take comfort in knowing that many people elsewhere will be spared the same unnecessary sacrifices.
There is also the intense pressure under which Greek society is now functioning – and the extraordinary courage with which ordinary citizens are coping with economic disaster. Brave people.