TPT July 2010

G lobal M arketplace

But two financial experts who write a weekly column for Forbes have not waited to declare the Greek rescue a test that the 16-member euro zone passed with colours flying. Brian S Wesbury and Robert Stein, chief economist and senior economist, respectively, at First Trust Advisors (Wheaton, Illinois), asserted that without the loans advanced by the EU and the IMF it is doubtful that Greece would have been able to roll over its debt at any interest rate. It would, simply, have defaulted. (“Greece Bailout Plan Represents Triumph of the Euro,” 4 May) Because Greece uses the euro rather than the drachma, default was avoided. Otherwise a major devaluation of the currency would have been inevitable, and the punishment for profligate ways would have fallen indiscriminately. As it is, the austerity measures to be imposed as a condition of the loans will be concentrated in the sector blamed for the problem: government. Salaries will be frozen, annual bonuses (equivalent to two months’ pay) eliminated, and the retirement age raised from 53 to 60. Athens will also be required to make other significant cuts, not yet specified, in its spending. Messrs Wesbury and Stein wrote, “With a devaluation, everyone would have taken a haircut – including those who earned wages and salaries in drachma in the public and private sectors alike – and domestic or foreign investors locked into earning drachma-denominated interest or investment returns from bank deposits, government and corporate debt, or equities.” Dorothy Fabian , Features Editor (USA)

From their beginnings the International Monetary Fund has been led by an official from Western Europe and the World Bank by an official from the US. When realignment of voting power is implemented at both institutions, can a change in this arrangement be far behind? › That the International Monetary Fund and the World Bank should be considering voting reform at the same time is only the latest example of their similarities. Distinguishing between the two institutions – both established to help maintain the stability of the global monetary system – taxed no less an intellect than that of John Maynard Keynes, a founding father of both and considered by many the most brilliant economist of the 20 th Century. On the IMF website, David D Driscoll notes that, at the organisation’s inaugural meeting, Lord Keynes disclosed that he was confused by the names: he thought the Fund should be called a bank – the Bank, a fund. Mr Driscoll writes, “Confusion has reigned ever since.” Despite the unsettled outcome, does the rescue of Greece represent a triumph of the euro? Between them, the European Union and the International Monetary Fund have approved a $136bn rescue for debt-riddled Greece, part of an overall $1tn loan package to protect the euro. As with the oil spill in the Gulf of Mexico, only time will tell whether the means employed to deal with the emergency and offset collateral damage have been effective.

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J uly 2010

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