The global economy is moving firmly towards a rebound after two significant developments yesterday. First, Greece took a critical step to avoid bankruptcy with an unprecedented debt write-off deal with its private sector lenders, clearing the way for the release of bailout funds from Europe and the International Monetary Fund (IMF) that would save the country from default. The markets will rejoice at the deal. The write-off deal means that Athens is now set to repay debt soon due and has a second chance to rebuild its shattered economy. More importantly, the eurozone has now avoided default chaos that would have destabilised global markets. The head of the International Monetary Fund Christine Lagarde said in Washington: “This is an important step that will dramatically reduce Greece’s medium-term financing needs and contribute to debt sustainability.” The deal wouldn’t have been possible without the cooperation of private lenders, a large majority of whom agreed to take heavy losses on their investment, enough for the swap to go forward. Their readiness for the write-off stems from the realisation that a ‘No’ would have been even more disastrous -- for them, Greece, and Europe and the global economy.
The second good news came from the US where employment grew solidly for a third straight month in February. It was a sign the economic recovery was strengthening and in less need of further monetary stimulus from the Federal Reserve. According to the Labour Department, employers added 227,000 jobs to their payrolls last month, while the unemployment rate held at a three-year low of 8.3 percent even as people flooded back into the labor force to hunt for jobs. The news came as a boon for President Barack Obama who is seeking reelection. Any news that the economy is recovering fast will be welcomed by voters who will see it as the result of the robust policies of the president.
The debt deal doesn’t mean that the Greek crisis is over. But it will give enough time for the Athens government to work towards a recovery. With the worst behind them, it’s a matter of time before they get on their feet. French President Nicolas Sarkozy put it rightly when he declared that the Greek problem was settled and a “page in the financial crisis is turning”.
The deal will mean Greece slashes its debt burden and qualifies for fresh bailout money as part of the €130bn package from the IMF, European Union and European Central Bank.
Greek people have paid a huge price and suffered enough. But the pain was unavoidable and is better than financial death. If their government can manage its affairs without inflicting more wounds, they can start rebuilding their lives.