Greece: The black sheep of the Euro
Greek politicians have been able to methodically escape responsibility for the country’s financial woes for years by blaming their respective predecessors. However, as the Greek economy continues its plunge, this excuse is no longer acceptable.
According to figures estimated by the centre-left Pasok government, it has been revealed that Greece’s projected budget deficit for 2009 of 6.7 per cent has leapt to 12.7 per cent. The reaction of an infuriated EU has triggered a collapse in the Greek bond markets, taking European investors for a white-knuckled ride.
Along with a deficit, Greece is experiencing public debt that is estimated to rise to 125 per cent in the coming year from the current 113 per cent. The previous government, the centre-right new democracy, has divulged that Greece manipulated its figures to meet the demands of the Euro in 2001. This, in combination with their deteriorating public debt and trade deficit, has given way to whispers of default.
Failing to provide any tangible solution to the battered economy, it will be years before any of Greece’s EU allies will trust their figures again. While the house rules of the Euro strictly prohibit bailouts and call for exorbitant fines for large money loans, they have been poorly enforced. For now, the talk that Greece will require the assistance of the International Monetary Fund (IMF) or seek a bailout from its EU friends is simply that.
Currently, Greece is required to raise over 55 billion EUR this year to maintain pension payments and salaries while refinancing its debt with an estimated timeline of six months. 40 per cent of this money will be required within the first four months by any means necessary: a clear indication of dire times.
Prime Minister Georgos Papandreou, elected this past October with a large majority government, has been credited with taking courageous steps toward reform. Nonetheless, President of the European Central Bank Jean-Claude Trichet urged Papandreou to be even bolder; a request that hinted toward slashing public sector pay.
At an EU summit on Dec. 10, Papandreou blamed rampant corruption as one of the main factors contributing to a corroded economy. While pessimists often refer to corruption “as central a part of Greece as the Acropolis,” they remain unconvinced that the excuse will build support for unpopular reforms.
Papandreou has proposed a pay freeze for civil servants, public sector recruiting and military expenditures, a 10 per cent cut in operating budget and an increase in taxes for the wealthy – a plan that has projected to decrease the deficit down to 8.7 per cent.
Skeptics are unconvinced. Following the presentation of the aforementioned plan on Dec. 14, credit rating agencies such as Moody’s, Fitch and Standard & Poor downgraded Greece’s credit from an A- to a BBB+. This is a phenomenon by which, all factors considered, had a 4.80 per cent chance of occurrence.
Despite the economic problems, the Pasok government has the foresight to recognize that Greece’s problems extend far beyond finances. Riddled with underemployment, an education and health care system that badly need reform and a failing attempt at transparency, the outset looks grim. However, with systematic, calculated and honest considerations, Greece still harbours the capability to become a considerable European presence.
Percentage of the eurozone debt Greece, Italy, Portugal, Ireland and Spain are responsible for.
Percentage the Greek government agreed to cut public sector spending by, in December 2009, in order to curb the country’s growing deficit.
The number of years the euro has existed as a currency.
The number of nations in the eurozone.