Radical fiscal adjustment, not a bail-out, is the best way to protect the euro in the crisis stemming from Greece’s dangerously high public deficit. That, at least, is the cure advocated by the designer of Poland’s so-called ‘shock therapy’ in the 1990s that transformed it from a Communist to free market economy. The EU should signal to Greece it must make drastic spending cuts, including ending tax breaks to public officials, argued Leszek Balcerowicz, ex-Polish finance minister and currently professor at the Warsaw School of Economics, in a conference call, on 25 February, organised by the Atlantic Council think tank. Greek public opinion must be persuaded of the need to be more fiscally disciplined, he said, adding “shocks can be great educators”.

Fiscal adjustment should be combined with crisis lending from the International Monetary Fund with conditions attached, he said. There was “no point” devising a separate EU lending mechanism as there was not enough time, it might not be more efficient, and was more prone to being politicised, he said. The alternative - having EU member states bail out Greece, whose public deficit is 13% of its GDP - was not a long-term solution economically. Moreover, the German public, who would largely foot the bill, would not accept it.

EURO ENLARGEMENT

Balcerowicz did not think the crisis would have a negative long-term impact on efforts to enlarge the 16-member eurozone. He said Estonia should be admitted soon as it had been “very disciplined” and he praised Latvia and Lithuania’s efforts to cut their deficit. Entry to the euro would take longer for the Czech Republic, Hungary and Poland, he said, as greater spending reforms were needed.