Business

The Greek ‘no’

Greece is a case study on the risks the Pakistani financial system is built upon

Editorial July 07, 2015

a woman holds a placard with a greek national flag next to a message in greek reading quot no quot during a rally in support of greece in madrid july 5 2015 photo reuters

A woman holds a placard with a Greek national flag next to a message in Greek reading, "No" during a rally in support of Greece, in Madrid July 5, 2015. PHOTO: REUTERS

It is too early to be able to predict the repercussions of the results of the referendum in Greece that was held on July 5, but one thing is clear: the people of Greece have decided to place an extraordinary amount of faith in a government that does not appear to have demonstrated an ability to deliver. We hope, for the sake of the people suffering in Greece, that they are right. But we fear they may have been carried away by a mistaken sense of optimism. While both Athens and Brussels share the blame for the current state of affairs, it has to be said that the Greek government has behaved irresponsibly, deceiving its people into believing that the situation has an easier fix than it really does. Prime Minister Alexis Tsipras’s government has quite irresponsibly suggested that the Greek people’s vote would legimitise policy measures envisaging tax cuts and spending increases, forgetting that Greece simply does not have the money to finance such measures. At the same time, it cannot be denied that the Greek people have undergone much suffering in the past five years and if the European powers don’t want to see Greece exiting the Eurozone, their current insistence on the country continuing with harsh austerity measures could prove to be troublesome.

For us in Pakistan, the drama playing out in Europe should be of interest for more than academic reasons. Greece is a case study on the risks the Pakistani financial system is built upon. Like Pakistan, Greece has a corrupt and ineffective tax collection system, populist spending habits, and a tendency to borrow heavily from banks to finance the resulting deficit. Like Greece, Pakistani banks have massive exposure to their government’s debt. Unlike Greece, however, Pakistan thankfully has its own currency which limits the default risk for the banks and their depositors. But how long do we expect that to remain a bulwark against fiscal stupidity? The events in Greece in the coming months may well provide Pakistan with a stark warning of the consequences of believing in budgetary magic.

Published in The Express Tribune, July 8^th, 2015.

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COMMENTS (5)

Asad | 9 years ago | Reply @numbersnumbers: I was talking about the current Greek government, which is very different to the ones that undertook the lavish spending after joining the euro.

numbersnumbers | 9 years ago | Reply @Asad: You obviously don't follow the economic news closely! After joining the EU around 2001, the left wing Greek Government spent lavishly on social programs and fat early retirement pensions while fudging the books to hide their huge deficit from view! This charade was unmasked by the late decade fiscal meltdown! As for challenging the banks/IMF, Greece (and Pakistan!) is free to quit borrowing money from the world and survive (prosper?) on its own internal tax receipts! LOL!

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Asad | 9 years ago | Reply Great to see an editorial on the Greek crisis by a Pakistani newspaper; as the piece says, the issue is not just academic for Pakistan. But I have to disagree with the editorial staff’s assessment that the Greek government has been irresponsible. Although there has been obvious rhetoric, the government has actually signalled that it is ready to provide concessions on its ‘red lines’; defence spending, pensions and tax breaks for its islands. Without going into the technical details, the primary disagreement between Greece’s creditors (the Troika: the IMF, the European Central Bank and the European Commission) and the government is over the best way to remedy the crisis. Quite rightly and bravely I feel, the Greek government is challenging the failed neoliberal notion that externally-imposed austerity in exchange for bailout funds is the best solution. Instead, PM Tsipras has been advocating an investment-led strategy that involves some degree of debt relief, which can be argued, is a much better way of achieving a long-term solution to the crisis. Pakistan’s IMF loan is very much a shot-term and austerity-based plan and I can only hope that a future Pakistani government can similarly challenge these Western neoliberal ideas to develop a much better long-term economic vision. Obviously, this is much more difficult to implement than say. Greece is the exception, and they should be credited for this, especially in the developing world.

Lala Gee | 9 years ago | Reply Stupid OP - an independent or own currency is no safeguard against default. Pakistan is allowing China to "loan" it close to 40 billion dollars ..which Pakistan has to replay in the future. Unless Pakistan economy improves, its ability to replay will not come ..and either Pakistan has to default or do China's bidding. Its plain economic hitman from China....China's "loan" goes to Chinese companies...which do all the project work. Pakistan must hope and pray that its economy improves and it gets ability to replay its debt ..... else its another greece in the making.

curious2 | 9 years ago | Reply but one thing is clear: the people of Greece have decided to place an extraordinary amount of faith in a government that does not appear to have demonstrated an ability to deliver . Not much different than PTI. It's easy to pander to public sentiment - hard to actually deliver. PM of Greece promised his people that he could keep them in the Euro, significantly reduce their debt, and keep the banks/economy operating - who would vote against that? . Now that the election has taken place we discover the that the PM can't deliver on any of his per-election promises. The banks didn't open, the lenders didn't capitulate - and most experts are expecting Greece to get the boot from the Euro. . Experts are expecting Greece to run out of money within the week. That means that customers don't have money to buy products, businesses don't have money to buy inventory, and otherwise everything goes into the crapper real quick. Great example of how Chest Thumping only gets you a sore chest.

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