Greece: a problem deferred

Financial Times
September 19, 2011

Greece, it has been said, needs the World Bank, with its expertise in administration-building, almost as much as it does the International Monetary Fund. So, as officials in Athens scrambled to find more convincing means of plugging the country’s budget deficit than the controversial property tax plan, there was more of the nail-biting, 11th-hour uncertainty that characterises the Greek crisis. Nervousness over whether the European Union/IMF will release the latest tranche of the bail-out package caused yields on eurozone peripheral government debt to rise; the euro to tumble; and a renewed slide in the shares of European banks.

This is hardly an overreaction given the implications of the Greek malaise and the declining economic environment. The spotlight, short-term, may be on the bandaging of Greek finances, but the vicious austerity-recession spiral casts a far bigger shadow. Latest forecasts from the private sector and the IMF suggest that Greece, instead of contracting by about 4 per cent this year, could in fact decline by 5.5 per cent, with a further fall of more than 2 per cent next year. That would mean four years of recession.

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