Greek crisis close to ‘catastrophe’

The former senior IMF official who was mission chief here as Ireland slid into its bailout in 2010 has said that the Irish and other European governments are taking huge risks with Greece, warning that events over the weekend have brought the crisis to a new and potentially “catastrophic” phase.

In an interview with the Irish Examiner, Ashoka Mody also accused the Coalition of “hubris” in insisting that Greece follow an “economically illiterate” path that would lead that country deeper into a deflationary debt trap.

His comments came after the European Central Bank refused to raise the limit of so-called emergency liquidity assistance. As a result, the Greek authorities called a bank holiday to stop a continuing run on its banks after ordinary Greek depositors queued at ATMs to withdraw large amounts of cash through the weekend.

“We are now collectively, not just the Greeks, in a black hole,” said Mr Mody. “Those who think they are insulated from this, may continue to feel that for a few days. But the feeling that this will not spread well beyond Greece is at best wishful thinking, at worst it is denial.

“Europe has got caught in a ‘group-think’. They are taking a risk that is extraordinary.”

Mr Mody, now a Princeton professor, was also highly critical of the Government’s tough stance.

“We had a generation of Irish politicians who in their hubris took Ireland down into a deep crisis,” he said. “Ireland has come out of its crisis. But it seems that the hubris does not go away.”