Monday, 9 May 2011

Europe Day

Cubby asked me on a previous post to talk a bit about Greece and the situation there. Since, I’ve been (happily) living in the UK for the last five years (has it been so long?), I don’t have the best picture of the situation, but I do read and hear about it and I try to stay up to date. It’s only appropriate since it is today ‘Europe Day’.

In a nutshell, I can say that the situation is not improving. The country had to be saved from bankruptcy with €110bn rescue loans last May, but continues to struggle to raise revenue as its economy shrinks.The government is trying to reduce the Deficit and the National Debt. The terms of the rescue loans are steep and the deficit is proven worse than expected. The European Union wanted a 9.6% deficit last autumn but Greece now hangs at 10.5%. Unfortunately, the country is stuck in a vicious circle with no easy way out.

The terms of the rescue loans and plans to reduce the deficit and debt demanded ambitious privatisation programs, letting off a number of public workers, reducing wages / annual bonuses, creating different more flexible working plans, increasing taxes and minimising governmental expenses. These terms however backfire.

To say the least, these terms increase public unrest with weekly strikes. The unemployment rates have increased and more people are now into benefits demanding more money from a government who can’t afford to spend, while the inflation rates have increased. People are reluctant to spend any money and the markets fail. There are no investments, no new construction projects and the stock market plunges.

For example, from one day to the next, Christmas and Easter bonuses were scrapped for all pensioners and public sector workers. Up until that point according to legislation, an extra salary was given on Christmas and another one before Easter. Also, lots of benefits and allowances were cut. Because of these decisions, my parents saw in a single night their pensions diminished by around 25%. Also, there was a massive increase in VAT and most products’ prices rose dramatically like the price of petrol. That left most people very worried for the future and unwilling to spend more money than absolutely necessary.

My parents are not well off but they are OK, being luckier than other families. They however worry for their lifetime savings in the local banks, in case the country defaults and the bank accounts are frozen. My mother admitted not going general shopping for months. I have old colleagues from the university who are well educated engineers with postgraduate diplomas unemployed, not being able to sustain themselves financially. It is very sad to see them move back with their parents because they can’t afford rent or live on their own and expecting pocket money from their parents to do anything. Driving around bigger cities, the number of shops which are closed is heart breaking. Only the city centres do see some movement but the commercial sector is dying. What’s more worrying is the fact that apart from everything’s being done, the situation is not improving, the debt is increasing and there is no light at the end of the tunnel.

Fortunately, the smaller cities, towns and villages manage to sustain themselves. Their economy does not rely too much on services. Also, they say that tourism isn’t doing that bad with popular destinations maintaining same figures as the years before. However, these good news are not enough…

I’d like to mention to this point the political games which are being played on Greece’s expense. I’m not an expert but I agree that the way EU tried to ‘help’ Greece is debatable. I believe that on one hand there’s Germany and on the other mostly France. The current president of the European Central Bank Jean-Claude Trichet agrees that Greece shouldn’t leave the EU and go back to the former currency. However, ‘Der Spiegel’ published a false article that the prime ministers had a meeting regarding changing Greece’s currency. That article alone made euro reduce dramatically its value today! There is a general panic at the media and the country’s credibility rate is degraded by organisations like ‘Standard and Poor’ not helping foreign investments invest in the country. Needless to say that Germany generally benefits from the steep interest rates of the rescue loans given to Greece. These are only part of the games played in a national level. The powerful of Europe are trying to take control of the countries in peril like Greece, Ireland, Spain and Portugal.

That's the Greek Prime Minister in the middle, the people on the right and Merkel on the left

I might be saying the wrong things and my analysis might be childish to say the least. Economists with the right knowledge will analyse things differently. However, these are some facts that I read and hear that sadden me tremendously. I do love my country which unfortunately has become the laughing joke of late.


  1. I believe that every people have their right to express their despair! in any manner but not terror.
    Yes, there is truth in your story but I can't elaborate further. my equations tell differently
    and for that error, I was called to office in Frankfurt for meeting,
    don't be sad, one should see the light at the end of every tunnels.

  2. The people running the EU knew that the Conservative government in Greece was providing dishonest financial information and they did absolutely nothing about it. They're more to blame than the Greek citizens who didn't know about the phony accounting. But it's the Greek people and the new government who are subjected to all the economic punishment while the leaders of Germany and France sit back and point fingers at the "irresponsible" Greeks.

  3. @Suf_n_Steve I was thinking of you when I was writing my last post. Our points of view are different. You check figures, variables and policies in a national, inter-national level. I hear my mate complain that he can't even go for a cup of coffee because it's an extra expense after spending thousands of euros studying...

    @gp Unfortunately, the Greeks have been irresponsible and they were looking only what they can gain in the short term. That's always been a problem: the lack of organisation and proper planning. Compare Greece of 2004 and the Olympics and the situation now...

  4. I fear all countries will go the way of Greece. Making too many expensive promises in the past and having to come up with ways to pay for them now. The cycle of taking on more and more debt to pay for our luxuries, and now our necessities, cannot go on forever. Like a house of cards, one wrong move and it could all come tumbling down.

    Great post Nik. Thank you.

  5. i didn't even know there existed a "europe day". anyway, i feel badly about the economic situation in greece and other countries. it's like normal, every day people are taken hostage by international politics/ politicians who have fucked up big time. very sad. i hope the situation will get better soon.

  6. @Cubby For Greece I think it was the combination of introducing 'Euro', undertaking massive projects like the Olympics and some very bad governments being in charge. USA has a similar huge debt but GDP and production is different.

    @Luuworld I hope so too. :-)

  7. Hi there. I find it very interesting that your post doesn't mention any of the room for improvement that the Greek economy has and some of the drastic reforms that need to be undertaken. For instance, it is a well-documented fact that only a fraction of the populace pays taxes on the fair value of their assets. One need only count the number of swimming pools in Athens and compare it to the number of pools on which tax is paid to get an idea of the amount of tax evasion. Furthermore, I think that the Greek populace needs to accept that certain professions should not be entitled to full retirement benefits from the age of 50 onwards - hairdressers, bakers and professional trombonists are a start. Finally, the country's 'closed' professions are in long need of being opened up. Be omit an architect or a barrister in Greece is very, very difficult and even the licence to operate a long-haul lorry across Greece can cost upwards of €400,000 since there is only a limited supply.

    Yes, I do think the situation with the Eurozone is a bit of a shame but there are dozens of meaningful reforms that can and should be made closer to home but which aren't even being discussed, and that's a shame as it is such a missed opportunity and an obvious solution.

  8. @John F Thanks for your comment. You are very well informed. You are right that I didn't mention some of the measures that can be taken. Unfortunately, tax evasion is a common policy by lots of people. It was an anecdote how the government was using 'Google Maps' to find people with illegal, unregistered swimming pools.

    Unfortunately, Greek syndicates try to fight every meaningful reform. There are strikes and people's reaction to almost everything. The Law is not always applied, even to the members of the Parliament...

  9. Thanks Nik - that's my point. People have become so used to a standard of living that seems completely unreasonable in most other countries that they will not only resist reform, but they will actively fight any attempts to change it. That makes me and millions of others much less sympathetic to the case for bailout.