Economy in Greece is in financial ruins
Posted February 18, 2010 at 9:28 pm in Opinion
With the American financial crisis still looming over us, influencing political pandering in Washington and a wave of populist anger elsewhere, other financial bubbles have begun to burst all over the world.
What came out of those untimely bursted bubbles?
Doubt about the stability of the world economy and the global marketplace that could shuffle the economic order as we know it.
Recently, the Greek financial crisis has been a hot button issue. Despite having a population smaller than the state of Pennsylvania, Greece is in danger and could have a huge effect on the global economy.
Greece joined the European Union in 1981, but it took 20 years for the country to be economically stable enough to replace the Greek Drachma with the euro. The E.U.’s strict policy with regard to economic viability, including country debt limitations, prompted Greece to resort to less than savory tactics to fabricate a pristine fiscal condition.
It appears the same Wall Street tactics that caused the mortgage crisis in America were employed to boost the balance sheet of Mediterranean state. The Greeks invited investment bank Goldman Sachs and hedge fund the John Paulson Group, to spray paint the elephant in the room invisible. Goldman Sachs was on the scene in Athens in 2001 to arrange large transactions with the goal of reducing public debt (which had by that time exceeded annual Greek gross domestic product) but instead hid billions from overseers in Brussels. According to the Financial Times, bankers and officials say that the swaps were legal.
As recently as a month ago, Greek Prime Minister George Papandreou met with Gary Cohn, president and COO of Goldman Sachs. Curiously, Goldman denies to comment on the Greek issue.
There is something rotten in the state of Greece.
Since Greece is part of the euro zone, and because there is a large chance the rest of the countries could feasibly go down with the ship that is the euro currency, Germany and France — the two most politically and economically powerful countries within the euro zone — have a duty to the E.U. to face the challenge of the Greek issue.
So far, German Chancellor Angela Merkel and French President Nicolas Sarkozy have addressed a need for a solution but have not committed to anything concrete. The hesitance in both countries to sign off on the Greek bailout is logical: If Greece got into debt trouble because of weak economic policies and if those institutional problems are not changed, then who is to say that no matter how much money is thrown Greece’s way, the problem of budget deficits won’t still persist?
Aside from a much-needed bailout, Greece should look toward the International Monetary Fund for further assistance. The Financial Times reported that the French believe the IMF, should be involved because of their expertise. Yet I have to wonder what type of technical capacity the French had in mind.
The E.U. president, Herman Van Rompuy, has high expectations for Greece. He said with the implementation of rigorous, determined measures and efforts, Greece will eliminate its budget deficit by 2012 and will cut the deficit by four percentage points of GDP in 2010. An even more optimistic approach to solving the Greek issue was supplanted by Financial Times contributor, Michael Massourakis. He said that an E.U. bailout will not be necessary and reform and privatization should do the trick.
Call me a pessimist, but I believe things are more complicated than that.
Greece is a microcosm of a bigger problem; the Spanish and Portuguese financial crises, coupled with the Greek issue, are taking a toll on the euro zone and exhausting resources for potential solutions.
At some point E.U. policies, especially German and French policies, must accommodate the Greek issue and other economic crises within the E.U.’s midst because it needs to take care of its own, and be avoid economic self-mutilation.
Worst case scenario would be if, because of the financial crises in the euro zone, the euro took a devastating, suicidal plunge and created a global economy so off-kilter it’s aftershocks would not be just a “ripple effect” as Vanessa Rossi, economist at the think tank Chatham House, deems, but a tsunami.
Miruna Barnoschi is a freshman majoring in international relations.
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This article is tagged: economy, european union, Goldman Sachs, Greece
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“Greece should look toward the International Monetary Fund for further assistance.”
The IMF and the rest of these neoliberal economists are the ones who got Greece into these problems to begin with. How can the solution to neoliberal capitalist greed be more neoliberal capitaism?