Atlantic Council

The Atlantic Council's Global Business and Economics Program hosted a conference call with Professor Leszek Balcerowicz on the Euro debt crisis.  Balcerowicz, a former Finance Minister of Poland, shared his views on the measures needed to ensure Eurozone unity and assessed the current difficulties facing European nations as they attempt to rein in public spending and decrease their deficits.

The financial crisis has entered a new phase.  What began as a series of mortgage defaults soon became a crisis of bank insolvency.  The dire state of Greece’s budget and debt points to a more chilling aspect of the crisis: insolvency of sovereign nations.  EU leaders have yet to outline a concrete plan.  With fourth quarter GDP numbers in the Euro-zone looking dismal, unemployment high, and economic growth low, selling a “bail-out” plan will be politically unpopular.

Balcerowicz answered questions such as, how can the difficulties presented by debt levels in the Euro-zone be solved in the short-term?;  how will the battle for Greece change the European economic and political landscape?; and how will the affect Germany’s role as the de facto leader of the Euro?  What reforms must EMU members take to ensure the integrity of the Euro?

The conversation was part of the Mapping the Economic and Financial Future Series, a lecture series featuring high-level business leaders and economic policymakers from the U.S. and Europe hosted by the Council’s Global Business and Economics Program.

Event Summary:

Dr. Leszek Balcerowicz analyzed three options for Greece and Europe to mitigate damage to Europe’s economy, and the Euro itself:

1. Fiscal adjustment to prevent default: Greece needs to make “radical and deep” adjustments, including fiscal changes to cut excessive spending.  This should be coupled with aid from the IMF, which should provide conditional crisis lending.
2. A bail-out by EU governments: While acknowledging that this is not a long-term solution and that it is “not politically feasible” given German public opinion, Balcerowicz put the bailout option on the table.  The negative risk of the resulting public resentment would sow further distrust of the Euro project.
3. The departure of Greece from the Eurozone: Monetary independence would allow Greek authorities to depreciate the currency but ignore the fundamental causes of its budget distress, and add skyrocketing Euro-based debt to Greece’s woes. With no constitutional or legal mechanisms for leaving the Eurozone, the Greek public would not be willing to enter “politically unchartered waters.”

Recommending fiscal discipline as the only viable option, the former Polish Finance Minister and architect of the “shock therapy” that led the Polish economy communism to the global marketplace said, “Shocks from time to time are great educators.  I don’t know of any country which would have suffered because of excessive fiscal discipline.”  He emphasized that Greece should face the consequence of its actions and be expected to implement the necessary reforms.
—Summary by Drago Tzvetkov

Media Coverage:

• Do not bail out Greece, says architect of Polish free market – Brian Beary, EuroPolitics

More on Professor Balcerowicz:

As a former Deputy Prime Minister of Poland and former Polish Minister of Finance, Professor Balcerowicz was the architect of economic reforms initiated after the fall of communism in Poland.  His work helped end hyperinflation and balanced the national budget and ensured that Poland was ready for EU ascension in 2004.

Mapping the Economic and Financial Future Series:

• Gary Gensler: Financial Reforms and the Global Economic Recovery
• Robert Zoellick Assesses the World Economy
• Reforming the World Bank and IMF: A Conversation with Nancy Birdsall
• Tim Adams on China and the Global Economic Recovery
• EU Commissioner Charlie McCreevy: Regulating Financial Markets in Crisis
• Youssef Boutros Ghali Discusses IMF, Economic Crisis
• Josef Ackermann on the Global Economic and Financial Crisis
• Kroes Speaks on Economic Crisis

The Mapping the Economic and Financial Future Series is generously supported by Deutsche Bank.