Tags: Forbes | Europe | Wrong | Direction

Steve Forbes: Europe Going in Wrong Direction

Wednesday, 14 March 2012 07:49 AM

Europe is heading in the wrong direction on two fronts by allowing Greece to restructure its debts with private creditors in the manner it did, while doing nothing to foster growth needed to bring about more lasting recovery, says publisher and one-time GOP presidential hopeful Steve Forbes.

Greece convinced about 85 percent of its private creditors to agree to take a loss and restructure their debts, with some holdouts forced into the deal via tools known as collective actions clauses, which makes the deal, technically, a default.

"This is a default. They've managed to manage it in a way that doesn't roil the banking system, but the fact of the matter is they have not put in policies that will enable Greece to grow again," Forbes tells Yahoo's The Daily Ticker blog.

Restructuring debts with private creditors was a requirement for Greece to carry out in order to tap a $172 billion rescue fund arranged by the European Union, the European Central Bank and the International Monetary Fund.

That money will keep Europe afloat for so long, but without lasting reform, crises will return both in Greece and in other troubled countries like Portugal, Spain and Italy.

"You need to reform the economies internally and remove barriers to making it legal to do business — very difficult in Italy and Greece, reform your labor laws so you get the mobility in the labor market so you can hire somebody and not feel you've married them from now until eternity and radically reform your tax structure," Forbes says.

"You take your neighboring countries like Albania and Bulgaria. They don't like to pay taxes there but several years ago they put in a 10 percent flat tax, very easy to collect, and those economies are growing."

"They haven't put in the pro-growth measures in Greece, much less real austerity in the government part so you get the worst of both worlds, an economy that's going under the tank," Forbes adds.

Other noted market watchers are predicting Greece to eventually abandon the euro, and others will follow suit.

"Greece will be the first country to exit the eurozone, not this year but maybe later next year, but in order to restore growth, competitiveness and external balance they need the real depreciation," New York University Nouriel Roubini tells CNBC.

Portugal will follow, succumbing to temptation to default on its debts in exchange for a weaker currency.

"In terms of debt restructuring after Greece, I think Portugal is the more likely that is going to require a debt restructuring and maybe eventually an exit like Greece," Roubini adds.

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