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.
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.