Financial markets expressed relief when Greek politicians agreed on another round of stringent austerity to guarantee receipt of Greece’s latest bailout package.
But the accord solves little of Europe’s woes, many experts argue.
“We take one problem off the table for the moment,” Carl B. Weinberg, chief economist at High Frequency Economics, tells The New York Times. “That still leaves us having to deal with the dramatic destruction of wealth that has taken place.”
It’s difficult to see how a massive dose of austerity will help Greece in the short run, with unemployment running at 21 percent and the economy contracting.
Indeed, Europe’s insistence on more austerity will do more to bail out banks holding devalued Greece government bonds than the struggling Greek economy, Floyd Norris writes in The Times.
It’s not clear Greece will abide by the terms of its austerity package in any case. “Delivering the legislation doesn’t necessarily deliver the performance,” Weinberg says. “Greece could be out of compliance very quickly.”
And then there’s the issue of contagion. “The Pandora’s box has been opened for Ireland and Portugal,” Weinberg says. “We don’t know where this goes.”
Others share Weinberg’s pessimism.
“The interesting question was not whether a second program would be agreed upon, but what happens when it fails, as it inevitably will,” Mujtaba Rahman, a former European Union official and now an analyst with Eurasia Group, tells The Wall Street Journal.
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