Roger Altman: Austerity Deal Buys Greece Time
Greek political leaders have reportedly agreed on austerity package.
Greece will have to cut 150,000 public sector jobs by 2015 and also end permanent jobs in state owned companies. The deal would also cutt more than €3 billion in 2012 in retiree pension benefits and reduce the minimum wage by 22 percent.
But with key national elections in Greece and France in April, will this deal stick? Former Treasury Roger Altman and Chairman and Founder of Evercore Partners weighed in on this latest development.
LL: Are you pleased with this agreement?
RA: ECB President Mario Draghi is off to a wonderful start. Between his ECB decision which was profound to this agreement, he is doing brilliantly so far. I’m pleased like almost everyone else who is concerned about solving the European problem. That this debt swap will go forward and the severe crisis over in Greece will be relieved. I can’t say I would like it if I were a citizen of Greece. But everyone who isn’t wants to see the restructuring proceed and get this done.
LL: Does this agreement fix the fundamental problems facing Greece?
RA: It buys them quite a bit of time. Even after the restructuring, Greece is projected to get its debt to GDP ratio to 120% which is extremely high by any international standard. ion. Ideally it will ultimately stabilize Greece and not require further restructurings.
LL: How much time does this buy Greece?
RA: I have the impression that this should allow Greece to make it fully through 2012 and a little beyond.
LL: There are two key April elections are you concerned Greece will renege on these deal?
RA: Not particularly because the alternatives will be catastrophic for Greece. If this deal blew up and Greece couldn’t finance anything on its own. This austerity deal would be mild compared to what Greece would go through if they did not go through with this agreement.
Greece would not be able to meet its payroll or any services it procures. So I’m not concerned because at some basic level I would imagine the citizens of Greece understands this and will go along with these austerity measures.
LL: There is a fine line between austerity and growth. Can Greece grow out of this?
RA: Eventually. But no question the message here is austerity and austerity tends to have a pro-cycle effect. It prolongs the decline rather than shorten it. It’s not the medicine economists would prescribe over the short–term but it over the longer-term it will allow to Greece to fix its problems and grow.
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