Greece hid debt from the EU for years – but does this mean that the country should be punished in its hour of need?
To quickly summarize: Greece hired Goldman Sachs to help manipulate the Greek budget starting in 2001 to hide deficits that the government was incurring. The Greek economy was swept into the 2008/2009 world recession and in February 2010, the newly elected Greek government reviewed the 2009 year end budget and concluded that the previous government had misstated the deficit – it was not 5% but rather almost 13%. This revelation caused investors to grow wary of Greek debt, and they demanded higher interest rates which further increased the deficit.
Since February 2010, the EU, led by France and Germany, has been disciplining Greece for its irresponsible fiscal behaviour. What the EU has not been doing during this time is helping Greece in any way that will allow it to recover from the 2008/2009 recession.
Currently, in Greece, the unemployment rate is 20% while unemployment among youth is at a staggering 48%. The minimum wage is only €751 or $983 CAD per month while the cost of living in Greece remains much higher than the cost of living in Canada. Given these facts, it’s unsurprising that, as of July 2011, almost 30% of Greeks live below the poverty line and, of working Greeks, 14% are at-risk for poverty.
The previous figures highlight the social element of the economy: Greeks are living an economic reality that is usually found in North Africa or the Middle East – not a modern European state.
The actions of Greek citizens are also similar to the actions of a citizen in the Maghreb – they riot. Athens has experienced riots in five of the past six months as people struggle, and seek to show the government that they are hungry, poor, and desperate. The citizens who do have money are, of course, getting out of Greece as quickly as they possibly can.
On February 13th, the Greek government agreed to a bailout plan by the EU that would help them cover their debt payments on March 29th. Without the bailout plan, it is assumed that Greece will declare bankruptcy and exit the Eurozone – a move that France and Germany fear.
The EU bailout plan, however, is contingent on Greece cutting jobs, minimum wage rates and reducing their deficit to rates similar to 2005/2006 – all during a crippling recession!
The only solution that seems possible to save both Greece and the Eurozone is for the EU to provide a bailout now and reprimand the government later. Cutting spending is difficult in the best of times but, as any economics student knows, if consumption is down because people are living in poverty, and investment is down because people are too spooked about Greece’s economic future, cutting government spending will destroy Greece’s GDP.
The EU has tried to “help” Greece for the past two years with the same, tired solutions – impose austerity and you’ll receive a bailout – even though Greece has repeatedly said that it is unable to make the severe cuts that the EU demands. There is no precedence regarding what to do in this scenario and yet France and Germany still maintain that their way is the only way.
It’s time to give the Greek economy a chance to breathe. Then, once it’s off the respirator, the EU can impose all the sanctions it wants.
– Vanessa Pagé