Tuesday, May 29, 2012

What if Greece can't manage payback?

(CNN) -- According to Christine Lagarde, managing director of the International Monetary Fund, it is payback time for Greece.

Despite being forced to "clarify" her comments after a furious reaction from thousands of Greeks on Facebook, there will, she emphasized, be no softening of the demands the stricken country will have to meet if it is to receive further aid. But what if Greece simply can't manage payback?

As prescribed by the IMF itself, the normal remedy for a country that can't pay its debts would be devaluation and default. Locked in the eurozone, these options are not available. No one denies that the Greeks have very largely brought this disaster on their own heads. But, as anyone who has been there recently knows, they are now paying an excruciatingly heavy price for their past misdeeds.

The public sector has seen its pay cut by an average of 40% over the last year, and most pensions have been reduced. In what is left of the private sector things are even worse, especially for those who have lost their jobs in the downturn and the young, 50% of whom are now unemployed. Read More