Greece, facing doubts from European officials about its commitment to reduce deficits, will take years to emerge from its debt crisis, JPMorgan Chase International Chairman Jacob Frenkel said.
“What we’re talking now about is not a magic wand that in one day will change the face of the country,” Frenkel, a former governor of the Bank of Israel, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Those expectations will be frustrated unless it is communicated very clearly that problems that arose over years need to be corrected over years.”
Emergency talks of euro-area finance chiefs on a second bailout of Greece broke up late yesterday, with Luxembourg Prime Minister Jean-Claude Juncker saying the nation must turn its budget cuts into law to win a 130 billion-euro ($172 billion) rescue package. German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing deficit targets
“People say past record has shown that promises have not always been delivered,” said Frenkel, who’s based in New York at the JPMorgan Chase & Co. unit. “If you have a binding commitment that is coupled with international and Europe community assistance, then this can give some breathing space.”
In Athens, unions struck for the second time this week and police used tear gas to counter protesters. George Karatzaferis, head of one of the three parties backing interim Prime Minister Lucas Papademos, said he wouldn’t support austerity measures worked out for a rescue.
Won’t Solve Problem
“Let’s face it, it will not solve the problem for the long term,” Frenkel said of the aid package. “Growth is not purchased by money or by debt. Growth is acquired through economic policy, improved markets and increased flexibility of the marketplace.”
Germany’s Schaeuble said that current plans would leave Greece’s debt as high as 136 percent of gross domestic product by 2020, according to two people in the meeting who spoke on condition of anonymity because it was private. That compares with the 120 percent foreseen in the bailout being negotiated. Debt was about 160 percent of GDP last year.
A debt load that’s 120 percent of GDP can be an “encouraging number if it is a longer trajectory of a smaller number over time,” Frenkel said. “If the future means economic policies with greater tilt toward sustainable growth, and the word sustainable is key, then there is a chance. Otherwise, we are throwing good money after bad.”
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