THE GREEK DEBACLE
The worst is not yet over. Just as the topsy-turvy market began to stabilize after the severe stroke of the Dubai fiasco nearly toppled it, the Greek debacle has once again pushed it into consternation.
Had it not been for the support of Abu Dhabi, Dubai would have possibly collapsed, now the search is on for the savior of the Greek economy.
Corruption is widely regarded as one of the triggers of the Greek debt crisis threatening the euro common currency. Corruption is part of everyday life in Greece, and private households paid more than 780 million euros in bribes in 2009.
But the reality is more complex. A crisis began with the previous government in Athens cooking the books developed into three interlocking themes – the reluctance of the Greeks to swallow the nasty budgetary medicine prescribed for them, the medium-term outlook for the single currency and Europe's long-term role in a rapidly changing global economy.
Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country's already bloated deficit.
Had it been a country with a currency of its own, it could possibly have alleviated its present predicament by devaluation of its currency and hence would have created fluidity in the market and reined in inflation and national debt. But it can’t help it, being bound by the single currency Euro, over which it has no possible control.
The Country could do nothing but beg the other stronger (comparatively) countries like Germany and France to holds its hands while it is staggering on the precarious bridge to cross over from the land of recession to the new world of fiscal stability.
The big market players are concerned with the present scenario of the commitment level of the Greek government.
The risk of another default or – the doomsday scenario – of Greece deciding to leave the single currency has spooked investors, who are demanding a high price for holding risky Greek debt. The gap between the interest rates on rock-solid Greek bonds has widened sharply.
The political equation of the country is also quite unbalanced with public raging over the price hike and tax cuts. Bedlam is reining over the country.
The Greek prime minister has been criticized for spending cuts in the public sector services and for raising the tax rates which is blurring the already faded vision of a better future.
The Socialist government increased sales, tobacco and alcohol taxes and cut public sector holiday allowances to save 4.8 billion Euros (6.5 billion dollars), equal to about two percent of gross domestic product (GDP).
Pensions in the public and private sector are also frozen.
All this has deeply underlined the error committed by the European countries by making Euro their single currency in haste without considering the possible ramifications. A new sense of direction is what this predicament demands of the European authorities.
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