Wednesday, April 22, 2015
Greece’s Long and Painful Odyssey
Wall Street Journal
April 22, 2015
On April 23, 2010, George Papandreou stood in front of a camera on Kastelorizo, the tiny eastern-Aegean island farthest removed from the Greek mainland. With its idyllic harbor as an incongruous backdrop, he announced that Greece had requested a bailout from the European Union and the International Monetary Fund. It was the beginning of a long and painful odyssey. Five years later, a safe return to the Ithaca of growth, market access and unquestionable eurozone membership is less certain than ever.
A policy disaster of this magnitude was entirely avoidable. In the fateful days leading up to that first bailout, investment bankers from Lazard had prepared a plan for rescheduling Greek debt. But the Papandreou government abandoned that idea under pressure from the European Central Bank, Germany and France, which were afraid of the effects a restructuring would have on the banking system. They insisted instead that Greece commit to repaying its debts in full. The IMF, whose staff saw that a program of harsh fiscal austerity, with no devaluation and no restructuring, was bound to fail, acquiesced.
For a time, the plan appeared to be working. In the initial months after the deal, the Papandreou government was hailed by creditors as a team of committed reformers. Finance Minister George Papaconstantinou received a standing ovation at the fall meetings of the IMF in 2010. But markets panicked after the tone-deaf Deauville agreement, as it raised the specter of the default of advanced economies for the first time in decades. As Ireland requested its own bailout, reforms in Athens stalled.
Posted by Yulie Foka-Kavalieraki at 10:37 PM