Thu, May 24, 2012 - Page 9 News List

Greece and the euro — a quick and essential guide to the crisis

By Luke Harding  /  The Guardian


Successive Greek governments have failed to carry out badly needed reforms. The problem isn’t new: It goes back decades. As a result, the Greek economy is in dire condition. The global financial crisis has exacerbated these problems. The steps needed to remedy the situation are politically difficult, as the recent Greek election result — or lack of one — shows. At the same time, Athens is under immense pressure from its EU partners, especially Germany, to implement reforms. Greece’s fiscal tragedy is hurtling toward its denouement — the country’s bloody exit from the eurozone.


On May 6, Greek voters rejected the two big parties that supported EU-imposed austerity measures. The center-right New Democracy and center-left PASOK parties had held power for four decades. Both were trounced, with voters instead flocking to radical anti-austerity parties on the left and right.

On Tuesday last week, attempts by Greece’s president to cobble together a national unity government collapsed. Greece now faces a new election on June 17. The likely winner is SYRIZA, a collection of leftists, who reject austerity. On Wednesday last week, Greek caretaker Prime Minister Panagiotis Pikramenos took charge. If the Greeks catapult out of the eurozone, the contagion could spread to Spain and Italy. The entire European monetary project appears on the brink.


Greece’s structural problems go back a long way. We are talking about chronic deficits, declining competitiveness and poor public sector performance. Foreign investment has been static for a decade. The tax code is opaque and regulations for business are notoriously complex. The country has been on the EU’s naughty step for a long time, certainly since 2004 when Athens sensationally announced its previous government “misreported” expenditures. It “discovered” Greece had exceeded the 3 percent deficit threshold for the eurozone.

The conservative government of former Greek prime minister Kostas Karamanlis — and its successor led by George Papandreou — took measures to restore economic credibility. They raised taxes to plug the massive deficit, reformed the tax system and slashed expenditure. However, Brussels and the markets have called for deeper and additional budget cuts.

For ordinary Greeks, life has gotten worse. Tens of thousands of companies have been forced to close; countless shops in downtown Athens have shut; once-crowded cafes and restaurants are half-empty. Greece’s famous nightlife now only exists on weekends. Banks have tightened lending. Greeks have scaled back on spending. Unemployment has gone up: It is at record levels with 21.7 percent out of work (of which more than 50 percent are aged between 18 and 35). So has the retirement age, to 63 by 2015.

At the beginning of the crisis, most voters tolerated the government’s austerity program. They did not back strikes by farmers and civil servants. Recently, however, it appears that most Greeks have grown fed up with the politics of austerity. Gloom and pessimism are now universal, according to surveys, with Greece officially Europe’s most displeased nation. The political beneficiaries have been the far-left and right, with the country now practically ungovernable.


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