Greece crisis: India braces itself for negative fallout

  • Hindustan Times
  • Updated: Jul 02, 2015 08:05 IST

The latest Greek tragedy is not something Europe or the world cannot handle.

The question is how they go about it?

Athens will need help from outside to fill the fiscal hole it has dug itself into, it is simply too hard to achieve the amount of adjustment that is implied by official projections in the midst of weak growth and rising debt costs.

Seen from Europe’s non-Greek firmament, it seems logical that if the European Union and the International Monetary Fund (IMF) were to throw the Greeks a lifeline now, it will be in the interests of the rest of the Eurozone to a have say in how Greece is run.

Again, any bailout that lets countries in violation of the EU’s rules avoid the consequences of loose fiscal policies will raise concerns over the long-term viability of the euro as a global currency.

The Greeks are understandably furious on becoming laboratory animals in the battle between the idea of Europe and the markets.

EU institutions must take some of the blame for the mess as a club member brazenly massaged tax and expenditure numbers without anyone noticing.

There are, however, lessons for India in the unfolding events in Greece.

In the summer of 1991, India flew out 67 tonnes of gold to Europe to get $600 million to tide over a dire import payment crisis.

Nearly a quarter of a century later, India is watching the happenings in Greece, the cradle of western civilisation, to prepare for the potential ripple effects that could spread across continents.

Central banks, currency administrators and macro-economic managers across the world have seemingly swung into action to tame a potential global flu. Nobody wants a repeat of 2008.

Least of all India, which, by most accounts, will become the world’s fastest growing major economy, outpacing popular neighbour China. A crisis, if it were to spread quickly from the Mediterranean coast, could upset India’s ambitions of regaining its lost position as an engine for global growth.

India also cannot the drop the guard on the currency front to avoid a repeat of 2013 when a rush of dollar outflow weakened the currency to record lows.

For Union finance minister Arun Jaitley and RBI governor Raghuram Rajan, it can add to an array of problems, graver than just mounting travel and college expenses.

There is precious little any government can do to keep hot money from flowing out at the click of a jumpy mouse, but it can very well open the doors wider for the dollars to flow in.

Fresh and urgent reform measures will, at the very least, help soothe the frayed nerves of investors.

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