Daily Archives: July 19, 2011

The Greek government is on the knife-edge of solvency. Public debt is estimated to be around 160 per cent of the country’s gross domestic product, of which around three quarters is owed to foreign creditors. We cannot be sure whether it can service its debts within the boundaries of political, social, and economic stability. But I believe a route to Greek solvency is possible.

Greece’s ability to “pay down” its debts and restore long-term confidence in its solvency will depend on the future real interest rates it will have to pay – balanced against the real growth rate of its economy. If it is pushed too soon to the private capital markets it will face sky-high rates, if it is able to borrow at all. Insolvency and default would then become inevitable. The better approach is to lock in low long-term interest rates at the “safe” rate, close to the current German or French long-term borrowing rate. This could be achieved most directly through guarantees offered by the European Financial Stability Facility on Greece’s future borrowing.

There is a chance – a rather good one, I believe – that in the end Greece would prove able to repay its debts over the course of 20 years at lower interest rates established by the EFSF. It may be the last clear chance for Greece and Europe to avoid a potential calamity. It is an attempt well worth making. Read more

India today faces challenges that are as much moral as social or political, with last week’s bomb blasts in Mumbai having only temporarily shifted off the front pages the corruption scandals that more recently dominated. These have revealed that manner in which our politicians have abused the state’s power of eminent domain, its control of infrastructural contracts, and its monopoly of natural resources, to enrich themselves. Rectifying this is now arguably India’s defining challenge.

There is a curious paradox here; for India is the creation of a generation of visionary and selfless leaders who governed it in the first decades of freedom. These men and women united a disparate nation from its fragments; gave it a democratic constitution; and respected linguistic and especially religious pluralism. Today’s scandals, however, have their origin in the steady deterioration in the character of this Indian political class.

If nothing else, the scale of corruption will put at least a temporary halt to premature talk of India’s imminent rise to superstardom. Such fancies are characteristic of editors in New Delhi and businessmen in Mumbai, who dream often of catching up with and even surpassing China. Yet the truth is that India is in no position to become a superpower. It is not a rising power, nor even an emerging power. It is merely a fascinating, complex, and perhaps unique experiment in nationhood and democracy, whose leaders need still to attend to the faultlines within, rather than presume to take on the world without. Read more