Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience


Austerity has worsened Greek crisis

October 05, 2012


AN influential group of international banks and insurers has attacked political leaders in Europe over their handling of the Greek crisis, arguing that the single-minded pursuit of austerity has made the situation worse.

The Institute of International Finance, which last year brokered a deal between Greece and international bond investors to halve Greece’s private debts, said politicians are playing a dangerous game putting their desire for debt reduction ahead of coordinated efforts to spur growth.

Charles Dallara, the institute’s chairman, said the world’s major economies needed to coordinate their efforts or risk persistent instability and low growth.

Dallara, who was speaking ahead of the International Monetary Fund gathering in Tokyo next week, said governments were acting against their best interests by rejecting multilateral agreement on economic and regulatory reforms in favour of pursuing go-it-alone policies.

Dallara said: “The international financial community has a collective interest in reducing the uncertainty that currently surrounds the global economic outlook. If we want to lay the basis for a durable global economic expansion, then we need to see more concerted action by the world’s policymakers.”

European policymakers are expected to come under fire at the IMF for their failure to bring an end to the current crisis, which has triggered riots in Portugal, Spain and Greece.

Spain is poised to apply for a bailout from the European Union and the IMF that could amount to 400bn euros. Cyprus is expected to ask for a 14bn euro bailout within days.

Central banks have flooded the world’s financial systems with cheap funds to foster lending to businesses and households while banks rebuild their finances, but a disjointed and often contradictory response to financial regulation meant much of the funds were not reaching their destination.

The situation in Greece is of particular concern, Dallara said, where unemployment has rocketed and poverty increased dramatically.

The institute said the interest rate demanded by Brussels as the price of Athens’ rescue package should be cut to lessen the burden and allow the country to recover.

Portugal’s political consensus is also crumbling under the weight of austerity measures that have pushed the economy into a long depression.

Portuguese unions have called for a general strike on Nov 14 after the government announced a new basket of tax rises and spending cuts, after withdrawing the previous batch following violent protests.

The European Central Bank said that a rescue package for Spain would not include “punitive” costs, as it kept base rates at 0.75 per cent.

ECB president, Mario Draghi, hinted that he preferred to keep some of his armoury in reserve in case the economic situation for the 17-member eurozone deteriorates further.

Draghi said he stood ready to launch the ECB’s latest sovereign bond buying scheme, which offers individual countries the opportunity to sell their bonds at low interest rates to remain solvent, but he has yet to receive any applications.

But as if to exemplify the splits inside the eurozone, German finance minister Wolfgang Schaeuble insisted that austerity measures be in place before the release of bailout funds.

Schaeuble, who has a reputation as a fiscal hardliner, has previously blocked attempts to ease controls and cut interest rates on countries struggling with their debts. — The Guardian, London