Feb 22, 2012, 04.02 PM | Source: CNBC-TV18
Trevor Williams, Chief Economist at Lloyds Bank feels that Greece requires great political will to get out of the crisis it is facing.
Trevor Williams (more)
Economist, Lloyds Bank |
Below is an edited transcript of the interview. Also watch the accompanying video.
Q: Are you pleased with the developments of the last 24 hours; are you in that camp of people who are saying this not enough?
A: The latter. Even a 120 print 5% of GDP debt ratio by 2020, should the every optimistic economic assumptions turn out to be correct, is still intolerably high with very little prospect of it being reduced significantly beyond 2020. It is very difficult to see how the second bailout will work. You already need a third bailout. You need to bring it down to at least 80% of GDP, which implies that there needs to be a significant package to get it down to that kind of level. This comes down to the point of political will to enable that to happen.
Q: So are you saying that the loan amount or the bailout amount should have far exceeded a 130 billion euro? Alternatively, are you saying that the private sector should have taken a bigger haircut or that there should have been some other kind of ECB intervention? What is missing from this package?
A: What is effectively missing is a growth agenda. A way for Greece to be able to reduce the deficit through its ability to grow revenue and therefore that is contingent upon the economy growing and historically the best way of reducing debt is to grow GDP. There are little plans in this show as to how GDP is going to recover….
Q: What can the EU do to help Greece’s GDP move up faster? Isn’t that something that Greek politicians and its citizens now have to put their heads to work on and their hands to work as well?
A: There needs to be a number of things for growth to occur. One is that there has to be help from overseas. There has to inflow of foreign capital. There has to be help to support the Greek banking system. There has to be a willingness on the path of the Greeks to open their economy up to welcoming the foreign investment, to reform their labour markets, their public sector, and tax system. They need to become much more focused on generating greater economic activity in their economy in the way of the world economy now.
For e.g. lower the basic corporation tax act to very low levels, encourage foreign firms to locate in Greece, focus on the right education and skills, right type of infrastructure. Greece can do that but it will take a huge amount of political will. It will take a political consensus internally in order to do that and that is simply not there at this time. You ask what you can do at least you can help that process by allowing Greece maybe to stay in the EU. Also in my view, they may have to think seriously about whether or not to allow them to leave the single currency for a while and let them have a competitive edge.