Greece concerns us all
The G-20 summit that ended earlier this week at the Mexican resort of Los Cabos paid particular attention to the economic crisis gripping the euro zone. Some of the most powerful economies of the world — including Germany, France, Italy and Spain — are in the euro zone, which faces the prospect of unravelling because of the sovereign debt of Greece and Spain in particular, but also on account of vulnerabilities of many others, including Italy. If the euro zone cannot be salvaged, a key source of India’s investment and trade — and also of the United States and China — is at grave risk. This is why India contributed $10 billion to the IMF — along with other Brics nations — as part of a $440 billion firewall for the needy euro economies. The contribution is entirely liquid and will continue to count as part of India’s reserves, and will be returned whenever demanded.
The key question in Europe is of strategy. The debate is framed in terms of austerity (drastic expenditure cuts, underlined by Germany) versus growth through stimulating demand. These must not be made mutually exclusive categories. In Greece, the new conservative Prime Minster, Antonis Samaras, and his main alliance partner, the socialist Pasok Party, will agree to austerity measures but perhaps not without some stimulus provisions that at least offer hope of growth in a country that has been in recession for five years and has 22 per cent unemployment. Otherwise, a domestic political backlash can upset external rescue plans.
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