The worst of Greece’s financial crisis is over and other European nations won’t follow in its path, said former European Commission President Romano Prodi.
“For Greece, the problem is completely over,” said Prodi, who was also Italian prime minister, in an interview in Shanghai today. “I don’t see any other case now in Europe. I don’t think there is any reason to think the euro system will collapse or will suffer greatly because of Greece.”
Greek officials are trying to convince investors they can cut the nation’s budget deficit, which at 12.7 percent of gross domestic product was Europe’s largest in 2009. The government last week announced spending cuts and tax increases totaling 4.8 billion euros ($6.5 billion), the third round of austerity measures this year.
French President Nicolas Sarkozy said on March 7 the 16- nation euro region must support Greece, which has more than 20 billion euros of debt falling due in April and May, or risk destroying the currency. German Chancellor Angela Merkel, who runs Europe’s largest economy, has so far refused to give the green light to any aid package.
Intervention by European nations to date “was enough” and countries such as Spain and Portugal have “plenty of time” to get their finances in order, said Prodi. As Italian prime minister, Prodi in 1997 introduced a “euro tax” that helped cut Italy’s budget deficit to 2.7 percent of GDP and qualify to join the euro. Italy’s shortfall in 1997 was equivalent to 7 percent of the economy.
Investor Stance
Investors don’t yet share Prodi’s optimism about Greece. While the extra yield they demand to hold Greek 10-year debt rather than German equivalents has eased 88 basis points from a record of 396 in January, it’s still more than four times the level of two years ago. The premium on Spanish 10-year bonds is 69 basis points, twice what it was two years ago.
Greek Prime Minister George Papandreou, during a trip to the U.S. yesterday, said President Barack Obama supported the measures that Greece is taking to put its public finances in order.
“We’re not asking for a bailout, we’re not asking for financial help from anyone,” Papandreou told reporters in Washington yesterday. “We are taking measures to put our economy on the right path.”
Wealthy Countries
Prodi, 70, who headed the European Commission from 1999 to 2004, will teach at the China Europe International Business School in Shanghai. He said budget deficits are “a general problem for almost all the wealthy countries.”
The euro has weakened 5.8 percent against the dollar this year as concern Greece will struggle to finance its deficit eroded confidence in the European currency.
The Chinese yuan has rallied 6.2 percent against the euro in that time, reflecting the Asian currency’s peg to the dollar. A stronger yuan erodes the competitiveness of China’s exports to Europe, the No. 1 destination for the shipments.
“Europe is more than happy,” said Prodi. “For the benefit of the European economy, the decrease of the value has been absolutely positive.”