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Why Greece's debt troubles mark a new phase in global financial crisis Add to ...

Greece's debt troubles mark a new phase in the global financial crisis but the government's plans for public deficit cuts are achievable, even if European support is needed to weather financial market turmoil, OECD officials said Thursday.

The comments from the chief economist and the Greek economy specialist amounted to a guarded vote of confidence in Greece's plans to clean up its public finances but a warning that Athens must deliver this time, unlike in the past.

"Greece is not in good shape to put it mildly but Greece can implement the adjustment program it has put in place," Pier Carlo Padoan, chief economist and deputy secretary general of the Paris-based Organization for Economic Co-operation and Development, told Reuters in an interview.

"In a way, the Greek case signals that we are in a new phase of the global financial crisis where the forefront issue becomes fiscal sustainability rather than exiting the recession."

Mr. Padoan said financial markets were adjusting to a new world of slower economic growth and higher debt, with Greece on the frontline as public finances came under closer scrutiny inside and well beyond the euro currency zone of which Greece is part.

"Financial markets are reacting in a way that could reflect some uncertainty of judgment," said Mr. Padoan. "Concerns may be a little bit excessive at this stage."



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He was speaking as EU leaders who held emergency discussions on the issue in Brussels announced that Greece had their support but offered few details of how that support would work in the face of financial market pressure that has pushed Greek bond yields higher and the weakened the euro.

"Greece is going through a payment crisis which to be addressed requires two ingredients; one is a credible adjustment programme and the other is, if needed, short term resources to bridge any gap in financing."

"The situation is serious but can be tackled," he said.

Claude Giorno, Greek economy specialist at the OECD, said the country had to deal with its public finance overruns for once and for all, in a permanent way.

"Whatever the Europeans decide Greece has to adjust. There's no other way. They have to rescue themselves," Mr. Giorno told Reuters in a separate telephone interview.

Greece managed to reduce its public deficit drastically in the past, notably before the euro when it reduced it from 11.9 per cent to 3 per cent of GDP between 1993 and 1999, only to let it blow up again thereafter, he said.

"The bad habits came back. What more important this time in broader terms is that the efforts are sustainable," said Mr. Giorno.

The Greek government's targets for deficit reduction between now and end-2012 were "ambitious but achievable" though greater precision on measures and implementation timing beyond 2010 was still needed, he said.

Greek finances face a much bigger squeeze than many other countries as the age-crunch boosts pensioner numbers over the next 15 years or so, making it vital that Athens in fact aim for a budget surplus by the middle of this decade so that it can hope to manage the age-crunch of the ensuing decade.

Mr. Giorno recommended that Greece pursue a more German-style, rules-based approach to management of its finances, noting that this could involve caps on public expenditure and highlighting that Berlin had gone even further with a constitutional rule that requires it to keep its deficit under strict control.







 

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