EU needs a long-term recovery plan

To be or not to be that is the question Greece is trying to answer: whether in the face of its debt crisis it should still be a member of the eurozone or not has become a pressing concern, not just for Greece but for the rest of Europe as well.

The Greek public has shown that they feel the rescue package provided by European Monetary Union involves too much suffering, as the required cuts in public spending have risen from 18 percent in early 2010 to 53 percent now and the conditions attached to the loans have become tougher. As the country's former prime minister Costas Simitis said in a speech at the National School of Development, Peking University, Greek citizens doubt whether cutting public spending will solve the problem and worry that it may cause a long-term depression for its economy.

"I believe the current plan is less than comprehensive; they obviously lack a long-term plan. In the long run, Greece has to improve its economic competitiveness," he said.

But without a large market share and strong competitiveness, it will not be easy for Greece to compete in the global market.

On the other hand, lending money to Greece has aroused dissatisfaction among the public in the better-off European Union countries, such as Germany, where many citizens don't see why they should have to pay for Greece's debts.

The EU is still the biggest rescue partner for Greece, as the International Monetary Fund doesn't want to get involved too much, but the distrust among the EU countries is making it difficult to reach an agreement on how to tackle the crisis, especially one with conditions acceptable to Greece. "The EU badly needs to agree on a plan to combat the crisis," said Lu Feng, deputy dean of the National School of Development at Peking University.

If Greece does leave the eurozone it is hard to predict what the consequences will be. But if Greece is to stay, it means reaching a consensus as soon as possible and promoting its economic growth. Although many citizens in Germany are against providing more loans for Greece, the Germans are still in favor of supporting a more powerful fund to bail out troubled eurozone economies.

"Over 60 percent of Germany's trade surplus comes from EU countries; the connections will bind them together in some way," said Cheng Siwei, former vice-chairman of the Standing Committee of the National People's Congress.

But it is clear that with the election of Francois Hollande as French president, Germany will not have it all its own way.

If Greece chooses not to be in the eurozone, it would obviously be a blow to the world's only united currency, and it might have a domino effect, as others such as Italy, Ireland, Spain, and even France, have sovereign debt problems to varying degrees.

"For the world financial system, without the euro, it will mean returning to a world dominated by just the US dollar," said Cheng.

Several aspects need to be seriously considered in tackling the crisis. First of all, although the eurozone countries have the same currency, there needs to be a unified financial policy among the member countries and they need to agree on a unified policy to boost the growth and balance the development among different countries.

As Lu said: "It will be a problem if the EU remains just a single currency union, rather than a financial and political union."

He said weak financial regulations are the direct cause of the crisis and they must be strengthened.

Second, the welfare system in Europe needs reconsidering. European countries are proud of their welfare system, but according to Jin Liqun, chairman of the Board of Supervisors of China Investment Corporation: "The welfare system is like the ballast in a large boat, when the weather is calm and the boat is going well, heavy ballast is good, however, when the boat encounters a storm, it is time to give up some of the ballast to keep the boat light enough to survive."

With regard to cutting public spending, Jin points out that the timing and the schedule are important as it will be a tough battle winning over the public.

But according to Costas Simitis, most of the Greek public want to stay in the eurozone, believing that to leave may mean an "even tougher reality".

The author is a reporter with China Daily. E-mail: zhujin@chinadaily.com.cn

(China Daily 05/29/2012 page8)