Greece: New Finance Minister, No New Policies

Greece’s Socialist government announced that Evangelos Venizelos will replace George Papaconstantinou as finance minister. Whether a new cabinet created by Greek Prime Minister George Papandreou will help break the deadlock which has prevented Greece from receiving economic support from the EU and IMF is too early to tell. Papandreou has also offered to step down or form a coalition government.

A new finance minister does not mean any change in policy and even a significant change will not save Greece.  Fellow EU nations will have to decide if a Greek default will deeply harm them and their banks. The immediate financial health of the southern European nation could be of only secondary concern.

The IMF and EU nations, led by Germany and France, know that any austerity plan put into place in Greece will likely fail. The citizens there have already shown complete disdain for similar programs which are in place now. They riot for better rights and pay. That hardly matters. Many Greeks will continue to evade taxes, and riots only hurt the Greek economy which is heavily dependent on tourism.

It is hardly worth mentioning that Greece will default on its obligations. It may do so through agreements to roll over debt or delay interest payments. Either will trigger write-offs at large banks and roil the credit default swaps markets. The financial chaos these reactions will cause could be unprecedented. No one knows what the impact will be to the global economy. It will certainly not be good for Europe.

Ireland replaced almost its entire government early this year. Investors are just as pessimistic about the country’s prospects as they were before. The new government did ask for better bailout terms, but these breaks likely will not be enough to address Ireland’s many weaknesses, including banks which cannot sustain themselves, high unemployment, income tax rates which many economists believe must be raised, and a near collapse of the housing market.

Evangelos Venizelos cannot do anything beyond what his predecessor did.

Douglas A. McIntyre