The streets of Athens are full of a desperate population blaming politicians for having ruined their country. The Greek tragedy has become a European one, as all across the Euro zone there is a feeling that the party is over: sooner or later debts have to be paid.
Markets have no mercy with spendthrift states, so traders simply say: if you cannot pay, we will not trust you any more, so we will abandon you, and sell off your shares and your currency.
When countries are financially prostrate, the International Monetary Fund is there to help. But there is no quick fix, warns its managing director Dominique Strauss-Kahn in an exclusive interview for euronews in Washington.
“Well, the current crisis is only a Greek crisis. Greece has a lot of problems, a problem of debt, a very high level of debt, a problem of competitiveness. What has been done by
the Europeans with our IMF collaboration will help. I think they will overcome it, it will be difficult, but they will. For the rest, you have a lot of countries in Europe with fiscal problems because of the crisis, not only in Europe, but also outside Europe. So everywhere you need this fiscal consolidation. And when we look at Europe, because it is the topic of the week, it is clear that the decisions made by the Spanish and the Portuguese are very bold, they are really beginning to address the problem, and I think it will be fine.
Growth is a key question. Why is it so difficult for Greece to find growth? Because they have a problem of competitivity. What does that mean? That means that what they produce is more expensive than the same goods or services provided by other countries. That’s why they have to cut wages, which is terribly painful but absolutely necessary because it is the only way to sell what they are producing when other countries have lower costs, not those underdeveloped countries in Asia, Africa or Latin America, but their very neighbours in the Euro zone. Costs in Greece are 20 to 25% over the German costs for instance and this difference has to be fixed.”
When a country’s assets, like houses or offices, do not find buyers or their value has tumbled, debt, either public or private, becomes unbearable. The only solution is cutting spending or finding new revenue. Easy to understand, but difficult to do.
“And you may be very rich, you may be Rockefeller and nevertheless have too much debt. So the question is not whether you are rich or poor, the question is how indebted you are compared with what you own. And for a country like Greece for instance, partly for mistakes in the past, partly because of the consequences of the global financial crisis, the level of debt was too high. So they have to reduce, there is no other way to do it, because nobody will lend to them anymore if they don’t address this problem.”
Politicians in Greece, Portugal and Spain have asked for painful sacrifices from the population. Taxpayers who helped rescue the banks in the heat of the financial crisis have now to contribute yet again to stave off a debt crisis in the Euro zone.
“I’m convinced that all the money which has been put up by different tax payers in different countries to save the financial sector wil be repaid by the banks and the insurance companies to the states. So tax payers will not lose money, some will even earn some money, because of the interest. Same thing for the countries: we in the IMF are in the business of lending to countries having problems, but we have always been repaid. So nobody is losing euros or dollars in this operation. We are helping countries to get back on track, but it is not a grant, it is not a gift, it’s loans and these loans are repaid.
We are a kind of doctor. We go and help countries when they are sick. When countries are not sick they don’t ask us to come. So we try to help the countries but the biggest effort has to be done by the country itself because when somebody is sick you cannot become healthy if you just rely only on the medicine of the doctor, you have to change you behaviour, you have to be positive, you have to fight against the illness. So the European Union is in the same situation: the institutions that were built years ago and for the Euro zone 10 years ago, are obviously not strong enough in a crisis. They are good enough in normal times, but are not strong enough in a crisis and the recent proposals by Commissioner Oli Rehn are very important, because they will make it possible for the Euro zone to become stronger in terms of economic coordination and fiscal coordination, and if he is followed by the member states then I think it is a useful reform that will really improve the way the Euro zone works.
The crisis was a bad thing of course, but there is really some good coming out of the crisis which is the fact that most European politicians, leaders in the unions, in business, academics, everybody understands now that if they want Europe to go on, if they want the Euro zone to be a success they have to complete what has been started, what has begun with the building, the launching of the euro. And the euro of today is not completed, there is a single currency, but there is not the economic environment which makes a single currency viable when you have a crisis and that is what we are seeing now. I expect that the Europeans will take advantage of this crisis to really reshape and revamp the European institutions.”