Tuesday, 15 May 2012

Greece struggles to remain financially afloat

Speculation that Greece will exit the European Union is "propaganda," Eurogroup Chairman Jean-Claude Juncker said, adding that the May 14 Eurozone finance ministers meeting was not devoted to that topic, Xinhua reported. Greece must commit to the terms of the 130 billion euro ($NZ167 billion) bailout by the EU, European Central Bank, and the International Monetary Fund but exceptional circumstances such as extending deficit target dates could be discussed in the future, Mr Juncker said.

Greece's bailout program offers the only means by which the country's economy can recover, German government spokeswoman Steffen Seibert said May 14, AFP reported. Germany believes the program's terms and its duration are the right stance, Ms Seibert said, adding that Greece's political forces need to create a workable majority government.

The European Commission wants Greece to remain in the Eurozone, but Athens must respect the bailout terms, Commission spokeswoman Pia Ahrenkilde Hansen said, Reuters reported.

Greece will pay a $NZ430 million bond that matures May 15, an unnamed Greek official said, Reuters reported. This bond is a small step in the right direction for struggling Greece - a step Athens needs to take to stay afloat - but the time is fast approaching when the decision to retain Greece in the European Union may fall to larger countries.

It now seems eons ago when Greek civil planners thought it important to enter into the Olympic club and host the astronomically expensive world-class games in Athens. Such a thing is best forgotten now, lest we remember the naivety of thinking Greece could dabble in entertainment luxuries as others in Northern European countries worked hard to pay for them.

The May 6 elections in Greece did not produce a clear one-party victory. Of the two main rival parties, the centre-left Panhellenic Socialist Movement (PASOK) and the centre-right New Democracy (ND) both combined for a total of about 33 percent of the vote. This is down from the 77 percent they shared in 2009, a spread that has strengthened non-traditional Greek political parties.

Voters finally exasperated with the elite’s plodding attitude to the woeful economic situation are shifting their votes to fringe parties in protest, a trend predicted to continue in Greece and throughout Europe in 2012.

The ND and PASOK are the political parties of two powerful families. But the ability of the ND and PASOK to steer Greece towards economic safety (an outcome hypothetical at best) is greatly weakened as minor parties gain influence.

This loss of political control by Greek elites has created a stalemate. The outcome of the election is that they need to try again and hope for different results. Simply making decisions is difficult if there is no semblance of control and all but impossible if the splinter parties cannot agree on a coalition. Although bickering politicians is not the only cause of Greece’s problems.

Greece has always struggled with its geographical location. The Greek mainland, where large cities such as Athens, Corinth and Thessaloniki are located, is mountainous with little contiguous arable land. During invasions in the past this has been a strategic blessing, but in the modern era the lack of arable land has strangled the Greek economy.

Indeed, the true strategic core of Greece is the Aegean Sea and the archipelago of  islands. A great deal of Greece’s landmass is in these thousands of islands. But aside from strategic value, they do not create the necessary details of strong economy and they stretch precious Greek resources. Indeed, not until Greece was included in the European Union in 1981 did the country see an industrial, modern economy.

Greece is rumoured to be discussing an honourable exit from the Eurozone to climb out of the debt spiral dragging the Euro-periphery down. Reverting back to the drachma would give Athens a competitive edge in global markets, theoretically, but the Greek economy is almost entirely artificial. Greek exports are slim and contribute very little to overall GDP.

Just being part of the Eurozone has exposed Greece to unprecedented easy capital drawn from richer European countries such as Germany and France.

Athens has lived well for the last three decades, building their infrastructure on other people’s money. Now comes the point where long-expected fiscal discipline looms on the horizon and the ability to maintain this lifestyle with Greek exports alone is next to impossible. Significant downsizing is inevitable.

A reversion to the drachma is not the favoured choice for Athens, neither is it for Berlin or Paris. If Greece departs from the relative safety of the Eurozone, investor confidence and speculation would dissipate on the continent and something of a domino effect in the periphery countries may occur.

After all, if Greece can be allowed to fall, which country would be next? Spain, Portugal and Ireland are not faring much better than Greece. Italy is predicted to be strong for the meantime, but it is not an exaggeration to say the situation is tenuous in the EU going into the second quarter of 2012.

Greece's inclusion in the EU required the signing of treaties. One of which strictly forbids any member from printing Euros for its own consumption. This task is controlled by the European Central Bank (ECB). If Greece were to reintroduce the drachma on top of their participation in the EU, they would be held in contempt of this treaty. This is not to mention the horrors of a plummeting devaluation of currency Greece would experience.

Ultimately, the Greek decision to stay in the Eurozone sits with Germany. Life is smooth in Germany; the problems on the Mediterranean seem far away from one of the world’s best performing countries. If Greece collapses by shove or by gravity, Germany does not seem too overly bothered.

What will only amount to around 8 percent of German GDP if Berlin were to “purchase” Greek debt, is still not the preferred method to fix the crisis. Berlin would rather Greece fixed itself. It appears that although Germany fought two wars last century to wrest control of the European continent, when Berlin is presented with an opportunity to snatch hegemony through the power of economics, it simply can’t bring itself politically to take the last step.

Germany instead consoles itself with the plan that printing more Euros will eventually move them past this blot on their history. The truth is that the Southern European states are close to Depression-era market reactions and real people will suffer if nothing is done soon.

Far from being “propaganda”, Greek elites are seriously contemplating the potentialities of their departure from the imploding Eurozone. The problem remains though: what helpful decisions are left to make that will not fracture Europe?

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