Greece and the bridge of fools

Sun Feb 19, 2012 3:07pm EST
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By Stella Dawson

(Reuters) - The isosceles theorem put forward by the Greek mathematician Euclid became a test in medieval times of one's ability to master more difficult matters. Greece this week faces such a test.

It must convince the European Union, the International Monetary Fund and the European Central Bank of three things: fiscal measures will put its debt load onto a sustainable path heading toward 120 percent of gross domestic product by 2020; Greek politicians will abide by deep budget cuts even after their April elections; and a 200 billion euro debt swap with private creditors can be completed by March 20, the deadline for Greece to make 14.5 billion euros in debt payments.

Only if Athens meets these tests will Greece win a second round of international loans from the EU and IMF to avert a disorderly default, financial officials say. A decision is expected on Monday when euro zone finance ministers meet.

Clearing this hurdle would open the way for Greece to take on the still more difficult task of restructuring its economy - far beyond the initial steps it has taken so far.

The urgency is painfully evident. The latest data shows its economy in a freefall. GDP contracted at annual pace of 7 percent in the fourth quarter. Economists forecast a similar plunge in 2012. Unemployment is 21 percent and half of its young people under 25 are out of work.

Richard Parker, professor of public policy at Harvard University and an adviser to the Greek government until December, said Greece has to reform its family-based business and retail sectors and overhaul its wage and cost structure to make its primary industries, tourism and shipping, internationally competitive - a process that can often take decades.

"Because there is not a growth plan - austerity is not a growth plan - Greece faces a long, dark path," he said.

While Greece might avert a March default, its economy is unraveling so fast that new funds may only delay its collapse by a few months, Wall Street analysts said. Northern European politicians are equally skeptical.   Continued...