A Greek Tragedy
Civitas, 17 February 2010
Greece’s financial woes dominated last week’s EU Summit, writes Natalie Hamill. With government debt at 113% of GDP, and a public deficit of 12.7% (more than 4 times that allowed under the EU’s Stability and Growth Pact (SGP). Greece has been spending far beyond her means.
A bailout would break Greece’s fall, but strapped-for-cash EU states are not feeling generous and general opinion on Greece’s predicament seems to be that “they brought it on themselves”. Nevertheless Eurozone members are eager to protect the single currency (and their own pockets).
Supporters of the Lisbon Treaty might have found consolation in the crisis’ providing an opportunity for the new EU President to provide a unifying voice for the EU. President Van Rompuy did indeed achieve direction – in implementing an EU Summit venue change… but that was about it. Instead he closed the Summit with vague displays of solidarity: “We support efforts of the Greek government to achieve objectives of the stability programme, especially the target of a 4% reduction of the public-sector deficit”. The Greek Prime Minister labelled this statement “timid at best”.
To plug the holes in the sinking economy, Greece’s Prime Minister Papandreou has already raised the retirement age and pledged tax increases, which triggered nationwide strikes. Greece is in a difficult situation – ‘austerity measures’ are painful and politically damaging, but as Ireland demonstrated, they are necessary to rescue public finances.
After EU leaders complained about the slow speed of reform in Greece, the finance minister, Mr Papaconstantinou, compared the restructuring to “changing the course of the Titanic”. One hopes they spotted this economic iceberg in time.
What seems to be missing in the media furore about the ‘euro crisis’ is how Greece’s economy was allowed to steer so far off course in the first place. Long-term suspicions that Southern EU states were “bending” the SGP rules were not investigated, even when in 2004 Greece admitted to “creative accounting” to join the Euro …
The eurozone will most likely survive this crisis (if banks are “too big to fail”, surely states are too?) but will the EU learn from it? Establishing a shared currency between markedly varied economies was always going to prove tricky, but the minimum the EU should do is to stringently uphold the conditions and rules it already has in place; control debt before it turns into a currency crisis.