OUR PLAN WILL RESCUE GREECE AND PROTECT EUROPE / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( A MUST READ )

July 28, 2011 7:40 pm

Our plan will rescue Greece and protect Europe

By François Baroin and Wolfgang Schäuble

Europe and the euro are at a crossroads. Dealing with Greece’s debt and lack of competitiveness is crucial for containing the risks of contagion to the rest of the eurozone. The recent summit approved a road map for Greece to find its way back to sustainable growth and debt levels.


Given the Greek government’s commitment to stabilise its finances and strengthen its competitiveness, eurozone countries, together with the International Monetary Fund, will offer new financing, in view of Greece’s difficulty regaining market access. The private sector will bear its responsibilities, assuming a large part of Greece’s financing needs and easing its debt burden. The European financial stability facility, and later the European stability mechanism, will be strengthened too, including allowing them to act preventively where contagion threatens eurozone countries.


Greece can succeed in making its debt sustainable in the long term if it succeeds in both increasing growth and reducing its debt ratio. Greece has committed itself to additional drastic consolidation measures, with the goal of bringing its budget deficit below 3 per cent of gross domestic product by 2014. It has also committed itself to profound structural reforms to strengthen growth and competitiveness, as well as extensive privatisation. European Union structural funds for Greece will also be more closely targeted at increasing growth and competitiveness. On this basis, Greece will be able to overcome its debt problems and return to growth.


The public and private sector now have to act hand in hand to support Greece’s reform programme. The EFSF will extend its loan periods to between 15 and 30 years, and lower its interest rates. Additional funding of about €109bn will also be made available. The private sector, meanwhile, will voluntarily extend bonds repayment periods, substantially reducing Greece’s refinancing needs and, over time, taking losses of 21 per cent – the substantial contribution for which we have strived. The bonds will be extended by 30 years, and their nominal value will be guaranteed by the EFSF. This will give Greece time to implement reforms and to resume more solid economic growth.


Yet this alone will not dispel the risks of contagion. Therefore we need better tools to ensure that financial market reactions do not endanger countries while they are in the process of implementing reforms.


That is why the EFSF and ESM must be enhanced to allow both funds to engage in precautionary programmes, to recapitalise financial institutions and act on secondary markets if necessary to counter contagion risks in a timely fashion. Purchases may only be possible when the European Central Bank determines that exceptional circumstances prevail in financial markets and that there are risks to financial stability. And we will look further into the role of the rating agencies, starting from questions of transparency and oversight and ending with the limited number of global players in the field.


With this comprehensive set of measures, approved at the eurozone summit, we prevented Greece’s sovereign debt crisis from becoming a crisis that could damage the eurozone as a whole, and the euro as a consequence. But we are not naive. Rebuilding confidence in the eurozone will require patience, considerable stamina and vision. We have embarked on a way to ever closer co-ordination and co-operation of our national fiscal policies. Only by evolving the European monetary union’s institutional structures in such a way that euro members are obliged to adopt a fiscal and economic policy that reflects their joint responsibility for the common currency will we master the challenges that lie ahead.


Our path is demanding, but the risks associated with conceivable alternatives were much worse. We will defend the euro. We will not jeopardise the economic and political integration of Europe, which is the basis of our own prosperity. The euro is worth every effort because a stable euro improves the economic as well as the political prospects of Europe as a whole. We will persevere and overcome any obstacle that may appear along our chosen path.


The writers are the finance ministers of France and Germany
.
Copyright The Financial Times Limited 2011