The passing of Greece’s austerity package yesterday only bought a little time for Europe – a real crisis could be just around the corner, writes Zsolt Darvas
Europe can breathe again after the Greek Parliament’s vote in favour of the austerity bill, yesterday. Talks on a voluntary rollover of Greece’s public debt are ongoing with private lenders. But can we now sit back and have more confidence in the resolution of the euro-area sovereign debt crisis? Unfortunately not.
The Greek vote was necessary to avoid an immediate crash and it was a wise decision. It complements the country’s heroic efforts to keep control of its public finances and introduce growth-enhancing structural reforms. With or without public debt restructuring, further austerity is needed. Before the vote, the 2011 budget deficit was seen at 10.5 per cent of GDP – two-thirds of which is used for paying the debt interest. Clearly, even in the event of default and the unlikely case of complete denial of interest service – there still would be a sizeable budget gap that needs to be closed.
Πηγή: Bruegel