Europe gets Greeced

It would be hard for Pakistan to find a cousin in the west when it comes to economic (mis)management. But Greece appears to have brought the quest to an end.
The parliament in the land of philosophers, in a not-so-philosophical move, recently approved an austerity plan worth $40 billion, envisaging cuts in public spending - which will lead to heavy public sector job losses and slashing of welfare benefits - and raising additional fiscal support through taxes and privatisation, between 2011 and 2015.
Parliamentary approval of the austerity package had become a necessity the Greeks had to accommodate, thanks to their ballooning debt and looming risk of a default on repayments.
But more consequential than debt repayments was the possibility of inviting the reproach of the EU and IMF, putting in jeopardy the next tranche of $17 billion, - the final part of the $159 billion bailout package approved in May last year - as well as further prospective bailout packages.
Now that the final IMF-EU tranche has been approved, Greek ministers may smile at the success of the approval of their austerity package. But for the success of the implementation of the package, they might as well hide their smiles.
The austerity plan, with its colossal tax increases, cuts in public spending, and tall claims of privatisation proceeds - not to forget the absence of any debt restructuring clause - is not only idealistic, but also likely to stall the Greek economy considerably.
"They will be lucky to raise $2-3 billion in privatisations in 2011 (a stark contrast to a target of $70 billion to be raised through privatisations)...the economy contracted 2 percent in 2009, 4.8 percent in 2010 and 5.5 percent in the first quarter this year," said John Defterios, a financial journalist of the CNN.
It will be difficult to raise taxes from a stagnating economy, and, therefore, the package will not be of much help to the countrys debt problems.
Where analysts and journalists can clearly see the gravity of the situation in Greece, have the EU and IMF turned blind? Rather, it seems they have chosen to ignore these perils for the sake of upholding the strength of the EU as an economic bloc.
A falling out with the Greeks will make the world question the sustainability of the EU, with likely threats of a contagion on other vulnerable members such as Ireland, Portugal and Spain.
Barring this important facet of supporting Greece through bailouts, it is unlikely to be fruitful as far as pulling the country out of its debt quandary is concerned. "The problem of its enormous debt, and its inability to realistically finance itself for years to come, remain as intractable as ever. A default by Greece is likely regardless of what is done (or said)," the Financial Times said last week.
Greeces debt-to-GDP ratio of nearly 160 percent makes Pakistans debt-to-GDP of around 60 percent appear paltry, though the economic scenarios of the two countries share many similarities.
Just as Pakistan has to convince the IMF through announcements of fiscal measures to come clean for another tranche of the Funds SBA, "Greeces politicians reckon that so long as they pretend to fix their country, the EU will hand over the money whether the plan succeeds or not", says the Economist.
What both countries need is a stringent overhaul of the economic system and strength of steel by politicians to actually implement better fiscal management rather than merely making claims of being able to do so.