“Who goeth a-borrowing, Goeth a-sorrowing.” - Thomas Tusser
The economic situation in Greece has reached a crisis point, which has threatened not only the European economy but has also cast a shadow on the shaky recovery from the global financial crisis. Greece is the leading economic force in the Balkans and a collapse in its economy will have dire consequences in its immediate vicinity. Furthermore, the single currency model that the European Union has espoused makes it vulnerable if one of its member countries fails. As if all this weren’t bad enough, the remaining southern European countries (Italy, Spain and Portugal) are also on shaky financial ground. However, it is not a problem confined to southern Europe, even Ireland is in trouble!
Greece is a developed country with a high standard of living and very high Human Development Index (HDI), ranking 22nd on the Economist’s worldwide quality of life index. Since the early 1990s, Greece’s Gross Domestic Product (GDP) growth has also been higher than the European Union average. However, the Greek economy also faces significant problems, including rising unemployment levels, inefficient bureaucracy, illegal immigration, para-economy, tax evasion and corruption. Greece’s economic growth turned negative in 2009 for the first time since 1993. This was because of over-lending in recent years. By the end of 2009, as a result of a combination of the international financial crisis and local uncontrolled spending prior to the October 2009 national elections, the Greek economy faced its most severe crisis. The national debt, put at €300 billion, is bigger than the country’s economy, with some estimates predicting it will reach 120 percent of GDP in mid-2010. The country’s deficit (that is how much more it spends than it takes in) is 12.7%.
Greece’s credit rating (which is the assessment of a country’s ability to repay its debts) has been downgraded to the lowest in the Eurozone, meaning it is viewed as a financial black hole by foreign investors. This leaves the country struggling to pay its bills as interest rates on existing debts rise. The Papandreou government, which came into office last year and inherited many of the financial problems from the previous Karamanlis government had to slash its budget and renege on most of its election promises in an austerity-driven strategy to try to reduce national debt. These measures are of course not popular in a country that has in the last few years been living beyond its means.
Eurozone finance ministers have finally agreed to a 110 billion euro rescue package for Greece to prevent a default and stop the worst crisis in the Euro’s 11-year history, from spreading through the rest of the European Union. Germany, the eurozone’s biggest economy, wants greater austerity measures from Athens, including more tax cuts, easier firing of civil servants and increased privatisation, for Germany to commit to the bailout. Greece has introduced a number of austerity measures in order to tackle its debt, leading (understandably) to widespread public opposition. Civil servants’ bonuses (including Christmas and Easter windfalls) will be cut by between 12 and 30 per cent, saving about $2.25 billion euros. It is pledging to trim social security payments further by raising the retirement age and banning early retirement in a bill to be produced in May. The state pension will also be frozen, saving $600 million euros. The VAT is being increased from 19 to 21%, this expected to raise $1.7 billion and is to introduce a 2% supplementary petrol tax to bring in $600 million euros. A one-off corporate tax will raise $1.3 billion euros and a 2% supplementary cigarette tax will give an extra $400 million euros. There will also be a one-off tax on holiday homes and oversized properties, while the commercial activities of churches will also be taxed.
Yet, despite the agreement by European finance ministers last Sunday on the unprecedented three-year loan package to Greece, the euro fell as world markets questioned the ability of the Greek government to push through its new austerity measures pledged in exchange for aid and is an indication of the worry that other vulnerable euro states may be following Greece’s footsteps. The International Monetary Fund (IMF)’s managing director, Dominique Strauss-Kahn, says the Greek Government has come up with an ambitious program to address its economic crisis. The IMF says its executive board will consider approving Greece’s request for about $40 billion in loans within the coming week.
I am finding it difficult to come to terms with Greece’s financial position, given the reckless way in which the country and its economy have been run for the past few years. Angela Merkel, the German Chancellor, has been dubbed the “evil woman” of Europe by Greeks given her reluctance to bail out Greece. Nicolas Sarkozy, the French president and also a philhellene, is the “good guy” who has from the outset wanted to help Greece out. Perhaps we should consider the way the two leaders live in order to understand who has the better plan for Greece’s rescue: Mrs. Merkel, a physicist raised in communist East Germany, has a hard-working, parsimonious lifestyle, still lives in a modest Berlin apartment she occupied before her election in 2005, and does her own shopping. She has an analytical, somewhat bland personality that in many ways reflects the national value system, according to Gerd Langguth, author of a 2005 biography of her. Mr. Sarkozy resides in the majestic Élysée Palace and has an army of staff members, not to mention his republican French background with its tradition of state intervention and a more Mediterranean and relaxed attitude toward public debt.
Greeks should perhaps cast their minds back to the legend of Hercules and the choice he made at the beginning of his life as hero. When confronted by the two goddesses, Kakía (Vice) and Areté (Virtue), he chose the rocky, winding path pointed out by Areté and not the easy, straight road pointed out by Kakía. To be honourable and virtuous takes great courage and self-sacrifice. The road of vice is easy to begin with but leads to ruin soon enough…