Greece ex-minster stresses Pakistan’s ties with China, India

LAHORE: Pakistan will only gain by strengthening ties with its neighbours China and India, a Greece ex-minister said on Tuesday.
“The more integration within Asia the strong it will become,” said Greece’s ex-Minister of National Economy and Finance Dr Yannos Papantoniou, speaking at his lecture, “Economic Crisis in Greece and the Future of the Euro” at the Lahore School of Economics.
Dr Papantoniou, who is President of the Centre for Progressive Policy Research, believed that Asia is the continent of the future with China and India as giant economic players. He cautioned against moving too fast and “instead takes it step by step in order to minimise risks”.
He said Greece’s GDP fell by 25 percent in the five years, unemployment reached 28 percent and public debt as percent of GDP rose to 175 percent, mainly reflecting the collapse of output. He added that if talks between the lenders (European Central Bank, International Monetary Fund, and European Union) and Greece stall, Greece’s economy would sink further into recession, and social tensions would rise as living standards would register a further sharp decline.
The chief of independent think-tank emphasised that Greece’s economic problems did not arise during the process of acceding to the euro area, but began when large current imbalances emerged among member countries soon after the currency union’s creation in 2000. Massive current account deficits in the weaker economies led to the accumulation of public and private debt, while the northern Europeans were running surpluses. The policies that the Eurozone has initiated to tackle the debt crisis have been inadequate and even self-defeating.
He added that in a currency union, individual economies cannot alter their exchange rates to account for changes in relative competitiveness. The resulting price stickiness tends to delay macroeconomic stabilisation and structural adjustment, leading to rising debt and unemployment in weaker economies. Without free labour mobility, fiscal transfers are the euro area’s only option to ease debt repayment and, by stimulating economic activity, boost employment.
“Moving to a fiscal union, along the lines of the US Federal model, will not be easy, as it requires a resource that is in short supply in Europe today: mutual trust, particularly between the north and the south,” Dr Papantoniou said. Binding the union closer together could prove critical to building such trust. One strategy that combines rationality with the gradualism needed to overcome political resistance would be to increase the union’s central budget so that it can ultimately play a macroeconomic role, promoting stability and reinforcing cohesion in the euro area.