The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
Market Watch
North American Report
Government Documents
Expat's Eye
Photo Gallery
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue

UPDATED: March 22, 2010 NO. 12 MARCH 25, 2010
Athenian Adversity
The Greek debt crisis reveals inherent risks in the euro zone


AN UNPOPULAR TRADEOFF: Members of Greece's trade unions rally in Athens on March 4 to protest against the government's adoption of an economic austerity package the day before (XINHUA) 

The Europeans have seen some fast changes lately—some certainly more welcome than others. The excitement surrounding the celebrations of the Lisbon Treaty's entry into force had yet to fade before another round of big news made headlines: Greece is flirting with bankruptcy.

To make matters worse, Greece is not the only nation within the EU caught in severe financial straits. Portugal, Ireland and Spain are in a similar dilemma. And they have been unceremoniously given a less-than-flattering moniker—the PIGS, alluding to their first letters.

Compared with the significantly more elegant-sounding BRIC (the acronym referring to the fast-growing developing economies of Brazil, Russia, India and China), the PIGS almost seem funny.

But to most Europeans, they are nothing to laugh about.

Origins of the crisis

A recent article in The Wall Street Journal held that if Greece had not joined the euro zone, it could enjoy more flexibility in public finance management. That way, it would not be so debt-ridden and incapable of extracting itself from the crisis.

This view is shared by a significant group of people. But it cannot be justified. The Greek crisis, indeed, has external reasons. The global financial crisis, for example, caused the Greek agricultural export and tourism sectors great difficulty.

More importantly, the crisis resulted from internal causes within the Greek economy.

For one thing, the Greek Government has long engaged in deficit spending. Indeed, it has spent money at such an extravagant rate that its national debt has grown completely out of control.

Greece's swollen population of government officials and civil servants, of course, have only added to the deficit. Among its total population of 10.7 million, 420,000 are government officials—an extraordinarily high percentage, even by EU standards.

Worse still is the fact that their salary increases have far exceeded the growth rate of labor productivity.

In addition, although the Greek Government has been carrying out privatization for years, its public sector remains huge with low efficiency.

Due to electoral politics, moreover, previous governments went out of their way to conceal the actual size of Greece's public debt and deficit spending through false accounting. Current Prime Minister George Papandreou, however, has now been forced to disclose the true nature of his country's financial situation.

Notably, U.S. investment banking and securities firm Goldman Sachs has reportedly assisted the Greek Government in dodging provisions of the Stability and Growth Pact—an EU agreement on fiscal discipline—concerning public debt.

Since 2002, the Greek Government has bought a considerable quantity of financial derivative products from Goldman Sachs. Using a currency swap scheme, these financial products enabled Athens to conceal its debt for a prolonged period.

In order to cope with the crisis, the Greek Government has adopted a series of economic austerity measures. These include reducing the size of the government's administrative expenses; downsizing the roster of government officials and reducing their bonuses; raising the tax rates on a variety of goods and products and expanding its tax base; cracking down on tax evasion; and delaying the retirement age.

The German Government and European Commission President José Manuel Barroso approved the plans as a clear signal of determination by the Greek Government to control spending.

But the Greek people contended that the government should not shift responsibilities to them. Trade unions of many industries, as a result, have organized a series of strikes and demonstrations. Civil servants, too, have been actively involved in the protests.

Undoubtedly, the confrontation between the government and the Greek public will not only aggravate social unrest, but also undermine the effectiveness of the government's anti-crisis measures.

A moral dilemma

Since the outbreak of the Greek debt crisis, politicians, scholars and people across Europe have been heatedly debating whether or not to save Greece.

Some feel Greece is caught in a crisis of its own making. So the EU, they say, should not help it.

Others, meanwhile, argue that since Greece is a member nation of the EU, other member nations should help it, lest the whole euro zone suffers a crippling blow.

Europeans have divergent interpretations of an article in the Treaty on European Union, which has been amended in accordance with the Lisbon Treaty.

The article says that the EU Council may grant assistance "where a member state is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control."

Some people believe that since the Greek debt crisis is not a difficulty caused by "natural disasters or exceptional occurrences," it lacks a legal basis by which the EU should rescue it.

Others, meanwhile, regard the crisis as an exceptional event beyond Greece's control, and think the EU should give a hand.

1   2   Next  

Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Most Popular
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved