Editor’s note: This article was first published in June 2011, while the second Greek bailout was being negotiated, and all its figures are from that moment, including sovereign debt of 340 billion euros and a first bailout of 110 billion. The second programme finally agreed in 2012 was about 130 billion euros. Spain was never fully bailed out.
The Greek crisis could affect Europe far more than we can imagine, and the data we have on Greece don’t give much reason to expect a happy ending. The question is whether Greece is merely “damaged” or actually broken. Another fact that makes the Spanish economy uncomfortable: every time the Greek crisis comes up in the United States, Spain’s name crops up one way or another.
Greece has a sovereign debt of €340 billion, and considering that the country has fewer than 12 million inhabitants, we could say that every Greek has to pay €30,000.
The first bailout package was €110 billion, which wasn’t enough given that the debt is equivalent to 150% of the country’s annual output. Now this second €120 billion package comes wrapped in controversy, because it is accompanied by demands from the European Union and the International Monetary Fund for tougher austerity measures: more wage cuts, more privatisations and more tax rises. The Greek people aren’t willing to accept that, given that unemployment is rising sharply, not to mention that the debt repayment carries 4% interest.
Several polls show that most Greeks won’t give in, so strikes are expected to increase considerably and become more and more violent.
People know how it came to this. A country only ends up in such a sorry state through corruption, tax evasion by large corporations, political tolerance of the banks’ excesses, and the pursuit of growth that only drove up debt. Greece is a reflection of what has happened all over Europe.
When the Greek government presented its accounts, it hid some figures that showed Greece was in much worse shape than it admitted. They lied, and that’s why the first bailout didn’t work.
What would happen if the Greek situation isn’t solved?
Those who are believers might want to start praying, because if this second bailout fails, Greece would set off a contagion across Europe with predictable consequences, though on an unknown scale. It would start by spreading to countries that have already been bailed out and that are contributing jointly, especially considering that more than 60% of Greek debt is being paid from 17 different countries. It would hit Iceland and Portugal first, followed by France, a country that has made large contributions to Greece, before reaching Spain.
If Spain ever had to be bailed out, we could be talking about the end of the European financial system, since a bailout for a country of more than 44 million people wouldn’t come cheap. Trust between governments would disappear, banks would stop lending to each other, and there would be other consequences we can’t foresee. Once a European crisis had broken out, we would infect the United States, worsening the financial illness it already suffers from. In other words, as “Dr. Doom” rightly says, the worst is yet to come.
Anyway, let’s hope the new Greek bailout works. I don’t know if you’ve noticed, but while we’ve been talking about Greece, the text sounds very much like what’s said about Spain, at least when it comes to “austerity” measures.
Featured image: Kotsolis at English Wikipedia, CC BY-SA 3.0, via Wikimedia Commons.
