Greek bailout: The Chinese character for crisis also means opportunity. The euro zone crisis may be a golden opportunity to get the streamlined economy it has long needed. The Greek drama has been messy, painful and isn't over. But Athens has already been forced to embark on radical reforms. If the remaining PIGS — Portugal, Italy and Spain — understand the need to avoid a similar fate, they too will take evasive action.
When the euro zone was created, many of its constituent countries had deep-seated structural problems: Ossified labour markets, unaffordably generous pensions and bloated and sometimes corrupt public sectors. In some countries, tax evasion was rife. The countries of southern Europe had routinely used currency devaluations to avoid the discipline of the market. Whenever things got tough, the lira, drachma, escudo and peseta tumbled.
Euro optimists thought the single currency would put these wayward countries in a straitjacket. With devaluation off the policy agenda, they could not avoid addressing structural problems. But nearly a decade of strong growth and markets which threw cash at governments with gay abandon took away most of the pressure to reform.
Still, perhaps those optimists were not so wrong. The discipline is finally arriving, thanks to a global recession that precipitated a crisis.
Angela Merkel has been attacked for exacerbating the agony of both Greece and its fellow PIGS by delaying the bailout. That's true. But if a crisis is to have a salutary effect, it is necessary to inflict the maximum pain without killing the patient. The German chancellor has followed this dictum pretty well.
Greece has now signed up to extremely unpleasant medicine including a 12 per cent fiscal contraction over three years. It follows Ireland’s savage cuts. Portugal and Spain have been scared. Of course, Athens’ will to reform could flag as protesters take to the streets and the others could lapse back into complacency. But Greece’s agony could lead it to embrace reforms that should have been undertaken a decade ago. That would be hugely positive for the region’s unity and long-term competitiveness.
