Economy: Greece close to bailout deal; India's growth to fall below 7%; Japan's 2011 current account surplus shrinks

Updated On: Feb 08, 2012

Greece's leaders have once more postponed a decision on a new bailout, though Prime Minister Lucas Papademos' office claims a draft agreement has been finalised. In other economic news, India says its economic growth is likely to dip below 7% for the 2011-12 financial year, while Japan's current account surplus shrank sharply in 2011 to its smallest in 15 years.

No Greece Deal Yet

Greece's ruling coalition was supposed to agree on a deal at a crunch meeting on Tuesday, but the deadline was once again pushed back at the request of three parties. Greece's politicians will meet yet again on Wednesday.

The latest delay was blamed on missing paperwork, the same reason given when the meeting was postponed from Monday to Tuesday.

The heads of three conservative parties, New Democracy, PASOK socialists and LAOS had yet to receive the draft agreement before the coalition was due to meet on Tuesday.

Greece must accept more austerity measures in order to secure the latest €130 billion (US$172 billion) bailout from the International Monetary Fund and European Union. Greek party leaders are under pressure from the EU to make up their minds fast, because Greece faces bankruptcy next month unless it gets the rescue funding to meet big debt repayments that are due.

But party leaders are reluctant to accept austerity measures which are highly unpopular with an angry and despondent Greek electorate, especially with parliamentary elections coming possibly as early as April.

A formal sign-off on the reforms demanded by international lenders - including a 20% cut to the minimum wage, pension cuts and civil service job cuts - is hoped to be concluded on Wednesday.

But many politicians in Greece seem to have little sense of urgency.

"We can't say a plain yes or no unless we have assurances from the relevant authorities of the state that these actions are constitutional and will lead the country out of the crisis," said George Karatzaferis, leader of the far-right LAOS party.

The tough terms of the deal are certain to mean a big drop in living standards for many Greeks.

Two of Greece's largest public sector unions began a strike on Tuesday, protesting against the bailout cuts. Police had to use tear gas to prevent some protesters from breaking a cordon around the parliament building.

Euro Exit?

The string of delays over a final decision has prompted some EU officials and leaders of other EU countries to warn that the eurozone can live without Athens.

Eurozone countries cannot be forced out of the currency bloc by their peers. But some policymakers in the bloc are saying that if Athens doesn't accept the terms, they might not do much to prevent Greece falling out of its own accord.

Dutch Prime Minister Mark Rutte said the eurozone could live without Greece if it didn't keep its side of the bargain.

"We are currently so strong in the rest of the eurozone, in the countries who have the euro, that we can handle an exit of Greece - a Greece which runs into serious trouble," Mr Rutte told Dutch public broadcaster NOS.

"They really have to implement all the measures they have promised to take. If that doesn't happen we can't help them," he added.

European Commissioner Neelie Kroes made similar remarks to a Dutch newspaper.

But German Chancellor Angela Merkel said on Tuesday there would be "unforeseeable consequences" if Greece left the euro.

"I will have no part in forcing Greece out of the euro," she said.

However, resentment in Greece is increasingly directed at Germany, which is seen as calling the shots in the eurozone. Striking protesters burned a German and Nazi flag in central Athens on Tuesday.

Eurozone officials say the full bailout package and accompanying reforms must be agreed with Greece and approved by the eurozone, European Central Bank and International Monetary Fund before 15 February.

This is to allow time for complex legal procedures involved in a bond swap deal - under which the value of private investors' holdings of Greek debt will be cut radically - so Athens can get rescue funds before 20 March. Greece has to meet debt repayments by that date or suffer a chaotic default.

Report: Greek leaders postpone meeting as euro exit discussed [BBC, 7 Feb 2012]

Report: Greeks seek elusive bailout deal as EU tempers fray [Reuters, 8 Feb 2012]

Former Malaysian PM Mahathir Comments

According to former Malaysian Prime Minister Mahathir Mohamad, Europe must face up to the new economic reality.

"Europe...has lost a lot of money and therefore you must be poor now relative to the past," he said in an interview with the BBC World Service's Business Daily.

"And in Asia we live within our means. So when we are poor, we live as poor people. I think that is a lesson that Europe can learn from Asia."

Dr Mahathir believes European leaders are in a state of denial. "You refuse to acknowledge you have lost money and therefore you are poor," he said.

Dr Mahathir argued Europe and the West must begin the long slow process of restructuring their economies to reduce their dependence on the financial sector.

"I think you should go back to doing what I call real business - producing goods, providing services, trading - not just moving figures in bank books, which is what you are doing."

Report: 'Europe is poor so should live within its means' [BBC, 7 Feb 2012]

India's Growth Slows

Meanwhile, India's economic growth may dip below 7 percent in the current fiscal year, the slowest pace since the 2008 financial crisis.

India's government has forecast a 6.9 percent annual growth for the 2011-2012 fiscal year that ends in March, below the 7 percent to 7.5 percent growth previously predicted by officials.

The old estimate was cited by Prime Minister Manmohan Singh just last week. In comparison, India's growth for the 2010-2011 year was 8.4 percent.

The downward revision reflects the slowdown in mining, agriculture and manufacturing sectors.

Analysts say industry has been hit by the central bank's frequent interest rate rises, designed to curb soaring inflation. Global market uncertainty, particularly in the eurozone, and apparent policy paralysis in the Indian government may have contributed to the slowdown.

According to an article in the New York Times, Indian officials have become alarmed by the slowdown of India's economy. After years of taking rapid economic growth for granted, the government is finally awakening to the need for new pro-business policies and greater foreign investment.

There are several pro-business policies India's government has either recently approved or soon plans to: allowing foreign individuals to invest directly in the Indian stock market, allowing overseas specialty retailers to open wholly owned stores in the country, and a proposal the cabinet is considering to let foreign airlines buy as much as a 49 percent stake in India’s airlines.

But sceptics wonder whether Indian politics will really allow the government to force significant change on the country's protectionism.

Report: India forecasts lowest economic growth in 3 years [Reuters, 7 Feb 2012]

Analysis: As Economy Slows, India Awakens to Need for Foreign Investment [New York Times, 7 Feb 2012]

Report: India economy: Growth 'to fall below 7%' for 2011-12 [BBC, 7 Feb 2012]

Japan's Current Account Surplus Shrinks

Elsewhere in Asia, Japan's current account surplus shrank sharply in 2011 to its smallest in 15 years, according to the latest figures. Weak exports and surging fuel imports resulted in a rare trade deficit, raising worries about the country's declining ability to fund its huge public debt with domestic savings.

The current account balance - a broad measure of trade and other flows - logged a surplus of 9.6289 trillion yen ($125 billion) in 2011, down 44 percent from the previous year.

This was the biggest fall on record, although income from overseas investment still more than offset the trade deficit.

Report: Japan 2011 current account surplus smallest in 15 years [Reuters, 8 Feb 2012]

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