It has been an interesting visit by US President Obama. To be frank my expectations about the outcome were not very clear however a lot seem to have been achieved which could lead to much greater investment into India and defence cooperation. Setting up of a hotline between the Indian PM and US President as well as the NSA’s is huge. Intelligence sharing is likely to help India prevent terrorist attacks and a clear signal on no tolerance towards terrorism is likely to eventual reduction in cross border terrorism. Operationalization of the Civil Nuclear Deal is positive and we need to see how fast investments can move on this. The other important feature of Narendra Modi’s speech in the Joint Statement was a reiteration of the entire Swachh Bharat scheme where it does not only mean cleanliness in general but also the cleaning up of the environment. This could open up huge opportunities in the alternative energy; clean energy as well as a clearer move away from fossil fuels by India at a much early stage of development than other countries. The flipside is of-course in increased monetary cost of progress. Support for India’s position as a permanent member of the UNSC is also very significant.
Overall the working together of the two biggest democracies is likely to be a big positive for India for its security and development over the long run. When Narendra Modi started his focus on overseas diplomacy there was a critique of his focussing too much on External Affairs. However as it turns out both the external and domestic issues are being managed well. The longer term economic prospects and as a follow through stock market outlook is improving.
GREECE- Greece matters move in the short run as the leftists come to power. As a right wing thinker I should ideally not agree with what the Syriza party is talking of.
However the reality is that Greece has no option but to restructure its external debt and let go of the extremely painful and forcefully imposed austerity programme. The country’s economy has contracted 25% over the last 5 years, youth unemployment is 60% and debt at Euro 320 billion is 175% of GDP. There is no way out but a restructuring of the debt obligations. In all probability the creditors need to take a 40-50% haircut in order to get the debt back to sustainable levels.
Spending cuts and soaring unemployment have seen around 3.1 million people, or a third of the population, lose their social security and health insurance, leaving the country on the brink of humanitarian crisis. Almost third of Greece’s population now lives below the poverty line, while 18% are unable to afford basic food needs.
If a company in the US was in such a stake it would go into bankruptcy protection. However countries do not go down. They survive as it is a real economy and it involves real people. The creditors who lent Greece so much money should have known that they are taking a risk. There is no way that forced austerity at a time when unemployment is so high and the economy is contracting can sustain. A 175% Sovereign Debt at the borrowing rates that Greece has is no way sustainable. The Eurozone will need to accept a haircut to move forward. If Greece moves out of Eurozone then it will be an outright default with no money likely to come back anytime soon. At this moment Greece has little to lose. As it is people are miserable and they might get more so in the near term by asking for a restructuring. However going with the IMF and Troika narrative will lead to pain for years.
Under the circumstances, in the near term Draghi’s money printing might prevent a major selloff. However as Syriza makes its intentions clearer after coming to power we should see volatility coming in. This space will need to be watched carefully along with renewed violence in Ukraine where things again seem to be going out of control.