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The Greek Financial Crisis and its impact on the Junker Plan



03/09/2015

With Greece being part of the European Union it is intricately and irrefutably linked to the Junker Plan which needs to succeed in order to kickstart the slacking EU economy. Does Greece have the strategic vision and the political will to undertake strenuous fiscal reforms?


The Greek Financial Crisis and its impact on the Junker Plan
 
Irrespective of whether Greece will follow the difficult path of fiscal prudence or play a game of one-upmanship and follow through with its call for referendum to manage its looming debts, France will walk-the-talk: during a visit to Luxembourg, French President Francois Hollande, announced the pledging of 8.0 billion euros towards the Junker’s growth plan.

He went on to mention that this will be routed through the Public Investment Bank and through the “Caisse des depots”. But in order for the plan to succeed, it is imperative that public and private contributors chip as well.

In order to kick start the slacking economies of the European Union, Jean-Claude Junker, the 12th and current President of the European Commission, announced a EUR 315 Billion Investment plan.  The Junker plan calls for:
 
1. The creation of a strategic fund which should generate EUR 315 billion over the course of three years upto 2017. It will also get partial support to the tune of 16 billion from the EU budget. EIB will also provide 5 billion. In real economy values, it is expected to leverage at least 15 times.

2. It will lay a foundation and provide a system for making large investments for the EU.

3. In the process, it will provide and create a roadmap to make the EU the destination for investments by curtailing red-tapism.

Although a few EU members have yet to contribute, Spain and Germany have chipped in EUR 1.5 Billion, and EUR 15 Billion, respectively.

Jyrki Katainen, the Vice-President of the European Commission, was naturally grateful and welcomed France’s contribution. He went on to say that "The plan is progressing fast with the commitment of member states and we are confident that the results will start to be visible this summer," he said.

The success of the Junker plan is irrefutably linked to the fiscal discipline of the EU’s member states. Alexis Tsipras, the Greek Prime Minister, was quick to urge his finance Minister to not react. He preferred to “fewer words and more action.” 

In order to get the next slice of its bailout package, Greek has few options but to adhere and take the difficult path of fiscal reform. In a carefully maneuvered plan, the draft proposal of the seven keys reforms that it intends to take has been leaked, in order to gauge the mood of its Eurozone lenders. Greece desperately needs its next installment of the bailout package, but unless it has the stomach to undertake strong steps, mere words and proposals are not going to have any affect.

Valdis Dombrovskis, the EU’s Vice President, was of the opinion that "a letter here or there isn't going to change much." Greece’s talk of leaning heavily on tax evasions, cutting down public expenditures, and streamlining the flab in the bureaucracy is not going to cut the deal.

Although its membership to the European Union is not at stake, what is very clear is that neither of the two parties are willing to climb down the ladder, Greece has to gulp down the bitter pill of financial reforms if it wants economy to be out of the doldrums, and naturally its Eurozone lenders do not want any loans to go bad.

Question is, who will blink first.

References:
http://www.eubusiness.com/news-eu/france-economy.104c
http://www.bbc.com/news/world-europe-31793145
http://www.ecas.org/junckers-new-investment-plan-boost-jobs-growth/
http://www.english.rfi.fr/economy/20150307-france-contribute-80-billion-euros-juncker-european-growth-plan