Tuesday, October 27, 2020

Botswana cannot ignore Greece’s financial meltdown

What is clear at this point is that Africa including Botswana cannot afford to ignore the developments taking shape in the Euro zone. This week started with heightened pressure and the strain of observing unnerving negotiations by the Euro Summit, at which Greece took centre stage. The talks finally ended after 17 daunting hours.

Greece’s financial crisis is important to Botswana because the Euro Zone includes countries whose currency affects the movement of the Pula. The Pula exchange rate is fixed to a basket of international currencies such as the USD, Euro, British pound, Japanese Yen and South African Rand. This is in attempt to maintain a stable and competitive real exchange rate of the Pula against its trading partners.

How far the Euro Zone actions that will follow will affect the continent and in particular Botswana is a question that deserves acute attention. The agreement reached was only the first but necessary step to reducing Greece’s financial meltdown heat; the work ahead is according to observers the real determinant of whether or not Greece will exit from the Euro Zone. The results of this impending exit are a real threat to the global financial system.

The bailout agreement arrived at by the Euro Zone leaders forced Greece to accept a payment option to its creditors it had earlier objected to. Greece has compromisingly agreed to sell off 50 billion Euros of its state assets, the size of which the International Monetary Fund (IMF) finds unreasonable. Out of the 50 billion Euros, 12.5 billion Euros is anticipated to be used for growth initiatives while 37.5 billion Euros will go towards repaying its debt.

Germany, one of Greece’s two biggest creditors, had demanded that Greece puts 50 billion Euros of state assets into an offshore fund for privatization and had also insisted that the public property be placed under the control of Luxembourg. Greece had objected to both the size of the fund and its location in Luxembourg. Following the common agreement of the Euro Zone leaders, it emerged that Greece had won half the battle as it was determined that the fund will be located in Greece. However, its size will remain as was demanded. The result is a step forward in defining and solidifying details of Greece’s rescue plan, a move anticipated to avert the looming financial meltdown. Greece has as a result agreed to pass reforms to its fragile economy, which will involve pensions and taxations.

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The Telegraph October 28

Digital edition of The Telegraph, October 28, 2020.