A Greek Bailout Without A Recovery Plan

Buried in the documents that cover the Greek bailout are inexact plans to get the economy of the southern European nation back on track. The success of the rescue depends in large part on improvements in Greece’s GDP. The plans for that are not in place and may not be for some time. Furthermore, the plans may never work at all.

Greece will get up to $229 billion in aid. Economists assume the amount will be enough to allow Greece to resolve its sovereign debt crisis, both now and for years to come. Private investors will participate in the rescue to the extent that the value of their positions may drop 20%. Credit agencies may say that Greece defaulted on its obligations. The power of the end of the crisis will probably overwhelm the opinions of the agencies.

The announcement about the Greek bailout made by the Council of the European Union says:

We call for a comprehensive strategy for growth and investment in Greece. We welcome the Commission’s decision to create a Task Force which will work with the Greek authorities to target the structural funds on competitiveness and growth, job creation and training. We will mobilise EU funds and institutions such as the EIB towards this goal and relaunch the Greek economy. Member States and the Commission will immediately mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms. The Commission will report on progress in this respect in October.

Those plans seem to indicate that Greece will receive help to right its tattered economy, which has been plagued by intransigent unions not willing to accept pay cuts and a population notorious for its tax evasion. It is impossible for any Task Force to solve those problems. It is a fiction that “exceptional technical assistance” will effectively address issues that are decades old.

The Achilles’ heel of the rescue is the same as the last rescue. Greece’s economy is ill-suited to reform. Strikes by union members and students may end, which should bring back the economically-essential tourist trade. Greece may sell some of its public assets to further cut its debt load, but the government has been effective at blocking that so far.

Greece will get money to solve its debt problems. The contagion that could have caused financial collapse in Portugal, Spain, and even Italy may end. But Greece will not be reformed by any task-force effort. The economic habits of its citizens are too well entrenched.

Douglas A. McIntyre