EUROZONE finance ministers have obviously opted out of the working time directive. It took them thirteen hours to hammer out the terms of Greece’s latest bailout on Monday night. Like teenagers, they only seem able to achieve anything in the wee small hours, when most sensible adults are asleep. But even a teenager could tell you this latest rescue plan is doomed to failure.
That is because the fiscal assumptions upon which the bailout is predicated are straight out of La La Land. The European Commission’s debt sustainability analysis forecasts that Greece’s debt-to-GDP ratio will fall to 129 per cent of GDP by 2020. This is higher than the 120 per cent target but still wildly optimistic.
It is based on the belief that the Greek economy, which contracted by a painful 6.1 per cent last year, will bounce back remarkably quickly. This year, the EC expects GDP to contract by 4.3 per cent before flatlining in 2013. It then pencils in laughable growth of 2.3 per cent in 2014 and 2.9 per cent in 2015. To put that in context, the Office of Budget Responsibility expects Britain’s much-stronger economy to grow by an only slightly higher 3.1 per cent in 2014-15.
The projections assume that Greece has the political will and operational ability to achieve the virtually impossible: a massive internal devaluation that boosts competitiveness within the strait-jacket of the euro.
At any rate, the bailout cash only gets Greece through to 2014, when it must return to markets. After yesterday’s haircut, no one in their right mind is going to buy the country’s debt for the best part of a decade.
All that Europe buys for its €130bn is time. It is throwing good money after bad.