Eurozone
crisis
- Q&A: Spain's woes
- Keeping the euro together
- Who's afraid of the euro crisis?
- How eurozone crisis affects you
 |
| Since receiving debt relief Ghana has achieved a 50% reduction in poverty relative to 1990 |
Despite
measures and initiatives being proposed by political leaders, history suggests
that the path leading Europe back to prosperity will not be smooth.
Many
Greeks, battered by austerity, would look with envy at some African countries
that had their crippling debts cancelled in the latter part of the 1990s to
allow them a fresh start.
The Heavily
Indebted Poor Countries (HIPC) Initiative was the first international response
to provide comprehensive debt relief to the world's poorest, most
heavily-indebted countries.
"The
idea was that these countries would present a programme of macro-economic
reform, along with good fiscal and trade policies, and only then would they
qualify for debt relief," says Shantayanan Devarajan, chief economist of
the World Bank's Africa Region.
In Africa
there was a very clear decision to go with the growth strategy rather than the
austerity strategy.
"Instead
of having half the population rising up against the austerity measures, which
we are seeing in some European countries, we actually saw increasing public
support for the policies to promote growth and reduce poverty," he says.
European
Model
Apart from
debt relief in African countries, there has been a precedent in Europe.
In the
effort to promote recovery after World War II, part of the Marshall Plan -
America's huge aid programme - was a strategy for dealing with the vast debts
that the vanquished nations of Europe had run up - most notably, those of
Germany.
Albrecht
Ritschl, Professor of Economic History at the London School of Economics,
explains how Germany received debt relief:
"Every
recipient country of the Marshall Plan had to sign a waiver which said that all
Marshall aid would amount to what was known as a first charge to Germany - it
meant that unless this debt was repaid by the Germans, no other charges could
be brought against Germany."
It meant
that from 1947, all German debt was in effect blocked.
"If
you were a merchant in the Netherlands and you had claims against the Germans
because they cleared out your factory premises during the early 1940s, you couldn't
go to court to seize any German export deliveries which came into the
Netherlands," he says.
Greek
perspective
This debt
relief that Germany enjoyed was reflected in its national budget.
In the
1950s the ratio of national debt to national income was less than 20%, at a
time when the UK had debt-income ratios closer to 175%.
What
Germany did next was to conclude treaties with individual countries and people.
"The
only country to protest loudly in the 1950s and 1960s and again in the 1990s,
was Greece," Dr Ritschl notes.
"That
is why when you talk to someone in Greece, not too many of them have a guilty
conscience about defaulting on their debt to the Germans," he says.
 |
| Protests against austerity cuts have taken place in Greece and Spain |
"You
still owe us some and now we owe you some, so now we are quits."
Germany
prospered after debt forgiveness and some people think the time has now come to
make amends for that, by picking up the tab for Europe.
"A
large part of academia and the media are saying we won't get out of this crisis
unless we have a heavy write-off," he says.
"That
would mean Germany, France and the UK taking serious action to restructure
their banking systems because of their exposure to southern Europe," he
concludes.
Who
qualifies?
Countries
like Spain, Ireland and Greece would undoubtedly like to have a fresh start,
but the World Bank's Shantayanan Devarajan says they would have to ensure there
was not another debt crisis 10 years down the road.
"The
fact they are suffering a debt crisis means there is a problem," he says.
"Countries
have to improve competitiveness, export more, and collect more tax
revenues," he says.
He also
maintains that debt relief should not be applicable to everybody.
"There
have to be some criteria to see who should get it. Some countries are not in a
position to benefit from debt relief, so a collective decision has to be taken
among all the stakeholders," he says.
As far as
Africa is concerned, debt relief has had more of a positive effect in some
countries than others.
"A
country like Ghana, which received debt relief in the early 2000s, has enjoyed
rapid economic growth and more importantly, rapid poverty reduction," he
says.
"Debt
relief created that space where Ghanaian policymakers could use their resources
for education, health and infrastructure, rather than paying their
creditors," he asserts.
But there
are other countries that received debt relief where both the growth and the
poverty reduction experience has been more tempered.
"One
example would be Senegal, where economic growth has not matched that of Ghana,
Tanzania, Ethiopia or Rwanda and as a result, the poverty reduction has been
somewhat anaemic," he says.
Some of
that debt relief was provided by taxpayers in the rich world, but the most
important part was the fact that the debt relief was accompanied by a reform
programme.
"These
programmes have not been dictated from outside, but came out of a political
consensus within the country," Mr Devarajan says.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.