Tags: EU | Europe | Financial | Crisis

Calls Grow for Greek Marshall Plan

Tuesday, 21 June 2011 02:04 PM

BRUSSELS — As budget cuts and tax increases push Greece deeper into recession, politicians, economists and business leaders are calling for a new approach — a Marshall Plan that would jolt its economy back to life and give its citizens new hope.

Debt-ridden Greece is currently negotiating a second rescue package, on top of the euro110 billion ($158 billion) it was granted a year ago. However, those loans depend on harsh austerity measures and an overhaul of Greece's economy, which are designed to make the country fit in the long-term, but will likely worsen citizens' financial pain in the short-term.

At the same time, billions of euros foreseen for Greece are languishing in EU coffers, as the country struggles to come up with its part of the funding.

"You can't tighten the thumb screws indefinitely," warned Andreas Rees, an UniCredit economist based in Munich. Yet more austerity might drown the economy, lead to lower tax intakes and ultimately backfire and drive the debt burden yet higher.

Already, the Greek economy is expected to shrink 3.7 percent this year, following a decline of 4.5 percent in 2010 and 2 percent in 2009, while unemployment has shot above 16 percent. Citizens who have held on to their jobs have lost much of their pension, had their salaries slashed and face more job cuts in the years to come as Greece slims down its public sector.

As angry demonstrations and defecting lawmakers endanger the passage of the vital new reforms in parliament, politicians are increasingly realizing that Greece's people will need some prospect of a better future to make the belt-tightening more bearable.

Lawmakers in the European Parliament, economists and business leaders — including the heads of German heavyweights Deutsche Bank and Allianz — have increased their calls recently for a stimulus package for Greece, similar to the U.S.-funded Marshall Plan that helped create Germany's "Wirtschaftswunder" — or "economic miracle" — after the Second World War.

"It is very important to supplement our macroeconomic efforts with something credible," European Commission President Jose Manuel Barroso said Tuesday, referring to the eurozone's rescue loans. "If we are going to get benefits in the long-term we have to already start mobilizing our resources for more practical purposes so that Greek people become aware that there is hope and that we are not just asking them to make sacrifices."

Just days before a summit of European Union leaders, at which Greece's imploding financing will be top of the agenda, Barroso urged the bloc's members to help the country get access to billions of euros in EU funds.

Of the euro20.2 billion in development funds budgeted to help Greece catch up with the richer regions in the 27-country EU between 2007 and 2013, only euro4.9 billion have actually been paid out. The rest is still sitting unused in EU coffers as Greece struggles to show it can put them to work efficiently and come up with its 50 percent of the funding for any proposed project.

Barroso said the European Commission, which manages the funds, could accelerate payments and frontload projects to give Greece quick access to about euro1 billion — a small fraction of what is available — to boost job creation and help make Greek businesses more competitive.

That money would come with "tight supervision" and increased technical assistance for Greek authorities from the Commission and other EU states, Barroso stressed.

However, even international help to set up projects that qualify for EU support would not get rid of the problem Greece is facing in co-financing them at a time when government spending is being slashed.

Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of the 17 eurozone finance ministers, has called for the co-financing requirement to be waved for Greece, and the idea appears to be gaining momentum.

"I don't exclude that this is something that could be discussed" at the EU summit this week, said an official at the European Commission. The official declined to be named because Barroso's push for easier access to EU funds for Greece is still in its early stages.

Some alterntive plans already exist. Jorgo Chazimarkakis, a member of the European Parliament for the German Free Democrats, has proposed a euro30 billion stimulus package for Greece, dubbed the "Hercules Plan." The package would combine the EU regional funds for the coming years with one fourth of the proceeds of Greece's highly unpopular euro50 billion privatization program.

"That would also set an even higher incentive for the Greeks to go ahead with the privatization," said Chazimarkakis, who is half Greek, adding that any stimulus plan has to come with EU officials overseeing how the funds are spent locally.

To get around the co-financing problem, Chazimarkakis proposed low-interest loans from the European Investment Bank that could be repaid once Greece is back in shape.

However, the plan faces some significant obstacles. While the EIB regularly provides loans for specific projects, sharing half the burden of Chazimarkakis's Herkules plan could well put too much strain on the bank, which had only euro72 billion to finance projects in all 27 member states last year.

More importantly, the EU's poorer states, which struggle as much as Greece with the co-financing requirement, would likely balk at any attempts to soften it for one country only. Greece's per capita income may only be 89 percent of EU average, but states like Bugaria and Estonia, which have managed their budgets much more tightly, have per-head incomes that lie 57 percent and 35 percent below average respectively.

What no one denies is that Greece is in deep trouble, as it now has to convince not only the markets that it has the wherewithal to get its finances back under control, but also its own citizens that the efforts are worth it.

"Foremost you need a strategy for the time after the imminent debt crisis," said Ulrich Kater, chief economist of Germany's DekaBank. "And that has to be a growth strategy."

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BRUSSELS As budget cuts and tax increases push Greece deeper into recession, politicians, economists and business leaders are calling for a new approach a Marshall Plan that would jolt its economy back to life and give its citizens new hope.Debt-ridden Greece is...
Tuesday, 21 June 2011 02:04 PM
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