The EU and Eurozone Have an Ethical Duty to Treat Greece Better

In a move that offers Greece its first helping hand, an investment deal between Greece and the European Bank for Reconstruction and Development (EBRD) worth up to 500 million Euros a year, was signed today. Reuters reports that the EBRD and Greece formally signed the five-year agreement at the development bank's annual meeting in Georgia. It was agreed in March. Greece's economy ministry said in a statement : "It could help the country's economic recovery significantly." The ministry added it should boost the funding options of Greek businesses, especially the small and medium-sized ones that have been hit hardest by the country's economic crisis. The EBRD's decision to start lending in Greece comes after years of debate at the bank about whether a member of the world's most advanced monetary union fits in with the EBRD role of helping countries make the transition to market economies. The EBRD head, Suma Chakrabarti, said he hopes to have the first Greek projects in place in coming months but says Athens leaving the Euro would complicate things. New EBRD forecasts on Thursday predicted Greece's economy would stagnate this year and EBRD staff warned if it left the Euro, the situation would be far worse both for itself and the countries around it. EBRD’s shareholders voted today for the bank to invest in Greece until the end of 2020, deploying its expertise in attracting and encouraging foreign and domestic investment, strengthening the role of the private sector and deepening regional integration. The EBRD will also help in solving the insufficient capital situation for Greek private companies, which is a key barrier to Greek growth. The EBRD can contribute significantly with its equity and commercial debt solutions. The EBRD will also help in expanding the private sector’s role in infrastructure and energy. Greece is a natural trade and investment partner for many countries in south-eastern Europe where the EBRD has a strong presence. The Bank will support investments. ~~~~~ The Greek deal came as part of the EBRD meeting that released its latest Regional Economic Report that predicts overall stagnation in 2015 across all 35 countries covered and slight expansion of just 1.4% in 2016. But this outlook masks stark regional differences, according to the EBRD : “This is a very diverse picture,” said acting Chief Economist Hans Peter Lankes. “There is definitely scope for optimism especially in countries closely tied to the Eurozone. But the Russian recession is a cause for concern in many other economies.” The EBRD says Russia may face a protracted period of slow growth or stagnation. Low oil prices and sanctions have taken their toll on an already weak economy with deep-seated structural problems. In Central Europe and the Baltics (CEB), forecasts for Poland, Slovenia, the Slovak Republic and Hungary have been revised upward, reflecting the stimulus from the Eurozone monetary easing that has added to the earlier positive impact of lower oil prices. The CEB region is expected to see growth of 2.9% in 2015, compared with a January forecast of 2.6%. Expansion of 3.0% is seen for 2016. The quantitative easing (QE) by the European Central Bank, the weaker Euro and lower oil costs are also benefiting economies in southeastern Europe. QE has allowed easier monetary conditions in countries with close economic ties to the Eurozone. ~~~~~ However, the EBRD warned that any volatility related to Greece could dampen the outlook. The EBRD says that Greece would be plunged into a major recession if it defaulted on its debts, hurting economies across Eastern Europe. The baseline assumption in today’s EBRD report is that an agreement will be reached between Greece and the lending institutions,. That would help build confidence and stability and could pave the way for a return to modest growth in the second half of this year, pulling Greece out of recession. Growth could then rise to 2% in 2016, as improved confidence and the ECB’s QE programme kick in. However, the EBRD says its forecasts would be rendered completely invalid in a negative scenario if the Greek government misses sovereign debt payments, enacts capital controls, puts limits on deposit withdrawals, or introduces IOUs (“pseudo euros”) or equivalent instruments to pay domestic obligations. In this case, Greece would likely fall back to a major recession, the size and duration of which are difficult to quantify now. ~~~~~ Meanwhile, Greek Finance Minister Yanis Varoufakis today renewed his request for a delay or resturcturing of the Greek debt with the European Central Bank. But four months of deadlock between Greece's radical left Syriza-led government and its EU-IMF creditors concerning the reforms needed to release the remaining bailout funds, has generated fears that Athens, which is running critically short of cash, may soon end up defaulting, setting off a messy exit from the Euro. Varoufakis today called for the ECB to agree for Athens to delay payment on some 27 billion Euros ($30 billion) in Greek bonds that it will otherwise be unable to repay. "It's quite simple, these bonds must be pushed into the future, this is clear also to the ECB," Varoufakis said. The Greek bonds were part of a batch purchased by the ECB in 2010 and 2011, he said. Varoufakis has warned that the country risks running out of cash within two weeks if no deal is reached with its creditors to unlock the last tranche of aid funds. In July and August Greece is already scheduled to repay over 6 billion Euros to the ECB from the same bonds, Varoufakis added. Amid widespread fears of a Greek exit from the Eurozone, the French Finance Minister today told CNN that there is no Plan B for Greece, which he says will stay in the Eurozone. ~~~~~ In another hardhit Eurozone country, although Spain is not on the front pages right now, and although the Spanish government recently announced that up to half a million jobs have been ceeated over the past year -- many Spaniards are feeling left out. Since the Euro crisis hit in 2010, Spain’s astronomical unemployment rates have vied with Greece's for first place in Europe. They have fallen from a high of 27% in 2013, but they are slowly rising again. In Andalucia jobless rates are around 35%. The overall Spanish unemployment rate increased slightly in the first quarter, to 23.8%. And in working-class neighborhoods, foreclosures continue while unemployment benefits are running out. Experts estimate that Spain will not reach its pre-2008 employment and economic activities rates until 2017, at the earliest. ~~~~~ Dear readers, Greece is suffering. Spain is suffering. And the Eurozone, the ECB and the IMF are stuck on the "pay up now" line vis-à-vis Greece. It made no sense for the IMF to demand a $750 million payment this week from a country that has said it will run out of cash in two weeks. Shakeseare said : " The quality of mercy is not strained; it droppeth as the gentle rain from heaven." Where is the Eurozone mercy toward Greece? Illegal immigrants hauled up on Italy's beaches receive much kinder treatment than Greece -- both in the media and from EU leaders. Someone -- Chancellor Merkel comes to mind -- should step up to assume the Eurozone's ethical duty to treat Greece as any EU / Eurozone member deserves to be treated.