Why Spain and Italy are keeping close watch on Greek deal with EU

Transcript of video with Professor Enrico Colombatto

Will other eurozone countries in financial crisis follow Greece's example of wanting changes to their bailout?

Professor Colombatto:

Well a number of key countries, in particular Italy and Spain are actually following very closely the Greek saga because if the euro authorities do not enforce the deal with Greece, when the time comes Italy and Spain would ask for exceptions and they will expect that these requests will be accepted. So yes, Greece is an example for more countries to come and they are looking forward to having an opportunity to behave the Greek way without all the hassle that has accompanied the Greek saga.

Does Greece stand any chance of recovering and paying off its debts?

Professor Colombatto:

Well, there is no chance Greece is going to pay back its money. I mean the Greek debt is well over 300 billion euros and Greece will never have that money. We have to recognise that giving money to Greece has been a bad investment. It didn’t pay back and that money is lost, period. That said, Greece should, if Greece wants to grow again, and again means as it grew in the distant past, it should enforce a number of key reforms. And I’m not sure that neither Alexis Tsipras nor Yanis Varoufakis have a clear view about what reforms consist in. So the answer is no, as things stand right now, A: Greece is not going to pay back a penny and B: it is not going to grow very fast, or not at all.

What are the lessons learned from this set of bail-out episodes?

Professor Colombatto:

Well, the lesson is that the European Union has made a big mistake in giving money to bad debtors and that in the future the European Union should stay out of these things. Public finance is a national question, financial management is a government question and if you run into debt it is a government problem not the European Union's. So the lesson is never again, don’t tamper with the financial market, don’t flood the markets with easy money, and don’t engage in bailout attempts that don’t work.

  • Greece needs the approval from international creditors to secure a four-month loan extension to its 240 billion euros (US$270bn) bailout programme.
  • The reforms include: Creating a fairer tax system & combating tax evasion.
  • Tackling corruption & targeting fuel and tobacco smugglers.
  • Implementing labour reforms on collective contracts and bargaining agreements.
  • Tackling Greece's 'humanitarian crisis' with housing guarantees and free medical care for the uninsured unemployed.
  • Reform public sector wages without increasing wage bill.
  • Achieve pensions savings by consolidating funds and eliminating incentives for early retirement.
  • Reduce the number of ministries from 16 to 10, cutting special advisers and fringe benefits for officials.
  • Greece's creditors are the European Central Bank, the European Commission and the International Monetary Fund.
  • There is little time left to agree an extension to the bailout programme. It is due to expire on Saturday, February 28, 2015.
  • Without an extension, Greece could face insolvency and face quitting the euro.