ISTANBUL- Hürriyet Daily News
The International Monetary Fund should take a larger role in Europe’s efforts to overcome the debt crisis, launching a fund to be contributed by eurozone members, according Elias Karakitsos, chairman of Global Economic Research firm. Still, ‘egos of European politicians are too big to allow this to happen,’ he says
IMF chair Christine Lagarde addresses a news conference at the end of an eurozone leaders summit in this July 21 photo. Greek politicians do not want to take the cost of the needed measures to avoid the darkest scenario, says Elias Karakitsos. REUTERS photo
The ongoing debt crisis in Europe’s 17-country, single-currency zone can only be prevented through a unique fund in which all member countries contribute from their national taxes, and the fund should be controlled by the International Monetary Fund, or IMF, according to a senior economist speaking Friday.
As the economic crisis in Europe has entered a new and critical phase, with fears that Greece could default and spark a global financial disaster, the only solution is a “10 percent tax allocation from each member state to an emergency fund that should be controlled by the IMF,” said Professor Elias Karakitsos, hedge fund manager of Guildhall Asset Management, speaking to the Hürriyet Daily News on the sidelines of a conference held by Unicredit Turkey in Istanbul.
Lack of union
“Unfortunately, egos of European politicians are too big to allow this to happen,” said Karakitsos, adding that many politicians and economists would easily oppose the idea of handing over the safe box of Europe into the hands of Americans.
Karakitsos, also an associate member of the Center for Economic and Public Policy at the University of Cambridge, said the main reason for the eurozone crisis is the “lack of fiscal and political union” amid a binding monetary union.
“Greece is the only state in the world where there is a state bubble,” Karakitsos said, in reference to the “corruption and lack of regulation and policies in Greece.” He also criticized Greece collecting a new emergency property tax levied on Greek citizens to raise $2.7 billion as “simply unfair.” Karakitsos said there was no way to slash the deficit by just increasing taxes, adding that the country needs more spending cuts. The professor said that by not cutting spending the politicians were entering a vicious cycle of debts and crises.
Greece will shed some 150,000 jobs in the public sector, long seen as an unwieldy burden on the country’s finances, by 2015 as part of the medium-term fiscal plan presented in detail by Finance Minister Giorgos Papaconstantinou recently.
According to Karakitsos, the country should solve this problem as soon as possible. Still pessimism lingers and “unfortunately I cannot see the light at the end of the tunnel due to the unwillingness of European leaders.”
Greece has a sovereign debt pile of 340 billion euros ($481.5 billion), more than 30,000 euros per person, according to Reuters. Currently, with its debt equivalent to 150 percent of annual output, Greece holds two unwanted world records: the lowest credit rating for a sovereign state and the most expensive debt to insure.
Karakitsos said Greek politicians either do not understand how the problems accumulated over the years, or they simply just do not want to take the cost of the needed measures to avoid the darkest scenario. He said the problem went well beyond the country’s borders and 11.3 million people to the outskirts of the European continent.
“If it was just Greece, things would have been way easier,” he said.