Euro Area Loan Facility

Deputy Olivia Mitchell: I support the legislation which is aimed at the financial stability of Europe. It is not just Greece; it is this country and all of the other countries in Europe. This is the second Greek bailout, bringing it to an eye-watering €240 billion. Our contribution is small enough but it is a considerable sum given our domestic circumstances. However, it is correct that we show solidarity with our partners in Europe, in particular as we expect the same from them. It is encouraging that one aspect of the package is the troika’s willingness to retrospectively reduce interest rates, which can bring down the debt burden for countries, not just for Greece but for other countries such as this one with high debt levels.

The entire package for Greece, the debt write-down, the restructuring of bond maturity, interest rate reductions and a direct cash transfer has, just by the promise of it, settled markets. I hope it will help Greece survive at least temporarily because settling markets is vital to their interests, our interests and to the interests of the entire European Union. It should be the focus of all our endeavours.
To be honest, however, I do not have great confidence that it will be a long-term solution to Greek woes as their problems are enormous with debt to GDP ratios of 168%. Even with the most imaginative financial gymnastics and the most optimistic assumptions no one can quite make Greece’s debt to GDP forecasts reach 120% by 2020. A ratio of 120% for debt to GDP is regarded as sustainable only in efficient and growing economies. I am afraid Greece is neither of those. It is a country of the most unwelcome superlatives. It is receiving the world’s largest ever financial restructuring deal. It has the largest balance of payments in the industrialised world as a share of GDP. It is less competitive than Rwanda and Namibia. Now there is also political uncertainty in Greece at a time when it is least needed. All of that has the potential to be serious trouble for the future of Greece but also for the future of Europe, in particular for peripheral countries such as this one and others with ailing economies.

Greece is in the unhappy position where neither austerity nor a stimulus package can work because of the total inflexibility of its economy and the absence of public support for the kind of change and the quantum of change that is needed. There are lessons for those in this country who resist change. Unlike in this country, despite the grave position in Greece, prices there have not fallen significantly. That is largely due to inflexible wage rates and practices. For instance, the price of houses, which as we know has fallen by 50% in this country, has fallen by only approximately 13% in Greece. Labour costs have risen in the past decade by 35% compared to 2% in Germany which has killed its tourism industry on which it is totally dependent. Greece remains uncompetitive and it continues to import more than it exports and, as other speakers have said, its economy continues to contract. Without structural reform to drive down costs the economy cannot grow and Greece’s debt will remain stubbornly high. It is not austerity alone that is causing that; it is the inflexibility of the economy and the resistance to change.

A stimulus package for Greece now would be a waste of money because it would feed into higher wages rather than growth. Everyone in Europe knows that. Investors know it. The troika knows it. The eurozone countries know it. The European Union has done the unthinkable – the thing it said it would never do – it wrote down debt. It went further; it legislated to prevent the write-down of the replacement debt in Greece. That leaves Greece with nowhere to go. It cannot write down further debt. No private investor is willing to lend to Greece and now the appetite in Europe for further bailout is lessening by the day. I do not know where Greece can turn for further bailouts. It has been almost conceded, if not publicly, that Greece may well exit the euro before very long. The lesson for this country is that it must strengthen our resolve to sort out our finances and restructure the economy so that if the worst does happen to Greece we are not so vulnerable that we are caught in the maelstrom of the contagion that will undoubtedly follow.