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- iHaveNet.com: Economy
by Marc Levinson
Global markets plunged as investors continued to react with nervousness to the prospects of Greek's debt crisis spreading to other countries on the
The 110 billion euro refinancing package negotiated between the Greek government and the
Greece's fiscal mismanagement has been so severe that even if it does everything the IMF has asked for, its budget will still be far in the red. Almost no one thinks the three-year IMF loan program will be the end of the story. Even if the rioters go back to work, the pensions are cut, and the taxes are collected, Greece is likely to be back at the table in 2013 to renegotiate its debts. With luck, the global economic environment will be more benign, and private financing will be more readily available.
Would another alternative -- exiting the euro -- be less painful, for Greece or anyone else? The answer is almost certainly no. Adopting its own currency in place of the euro would not spare Greeks the pain of adjustment; their pensions might not have to fall in terms of the new currency, but they would certainly be lower in terms of their ability to buy goods and services from the eurozone. Domestic interest rates would be sky-high; joining the euro brought Greeks huge benefit as interest rates on domestic mortgages and commercial loans moved closer to those in other European countries. A new Greek currency would bring a return to the bad old days.
Keeping Greece within the eurozone is in the interest of other European countries, too, for reasons of politics as much as economics. The aspiration to be part of the
The May 7 EU summit is likely to issue a ringing defense of the euro. This is all well and good. But at this stage, there is little the EU can do quickly enough to mitigate the financial-market pressure building on other heavily indebted EU member states, notably Portugal and Spain. Calming the markets is likely to require evidence that those countries are moving swiftly to bring their public finances into balance.
Marc Levinson is a senior fellow for international business at the
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Muddling through Greece's Tremors