Greek debt of 330 billion may become Europe's sinkhole

The crisis in Greece may result in major political consequences. A new government is about to appear in the country. Would it save the Greeks from a default? Who is going to save them? There is no unity on the issue in Europe at this point.

The current situation in the economy of Greece is, if not critical, then close to that. The public debt of this 10,000,000 strong country is 330 billion euros. International rating agency Standard & Poor's has published new statistics according to which the credit rating of Greece is the lowest in the world. If measures are not taken, the country could face a default.

Greeks were already saved by the entire Europe. The International Monetary Fund (IMF) and the European Union allocated a loan of 110 billion euros to Greece, forcing the Greek authorities to reduce state expenditures in return. However, it seems that these funds have fallen into a bottomless pit. The national debt relative to the GDP within the year increased from 127.1 to 142.8 percent. Analysts predict that over the next three years, Greece would need another $170 billion.

Also read: Greece nears economic collapse

Where can they get the money from? Economists have calculated that approximately $30 billion can be secured from the sales of various assets. The same amount can be obtained through debt restructuring. Another $45 billion can still be allocated by the EU and the IMF. The country cannot do without the new unpopular austerity measures. The government has already drafted a bill involving 28.4 billion euro in savings and gradual reduction of the budget deficit to one percent. Of course, all this will hit the pockets of ordinary Greeks.

The hot-blooded Greeks could not but respond to the steps of the government. On June 15, a crowd of thousands of people assembled near the Houses of Parliament, and in parallel a group of hooligans pelted the building of the Ministry of Finance with Molotov cocktails. The unions also started another strike to protest job cuts in the public sector. Public transportation was not working for a while.

Against this background, the economic crisis could not but lead to a political upheaval. Premier George Papandreou announced his readiness to seriously shake up the government. "I will form a new government and immediately turn to the parliament for a vote of confidence," said the prime minister. Perhaps, the vote of confidence will coincide with the introduction of new anti-crisis measures like raising taxes and sale of the state property.

It is not ruled out that the office will not stand, and soon Greece will be led by a new person - the leader of the opposition right-wing party "New Democracy" Antonis Samaras. Some Western media reported that Papandreou was proposed a deal: Samaras will become the prime minister in exchange for the support of austerity measures. However, he has not agreed to it yet. The opposition wants to revise the arrangements with the EU and the IMF and reject the austerity measures.

Would Samaras be able to avoid the austerity in the case he comes to power? The current Minister of Development Michalis Hrisohoidis is convinced that no government will be able to revise the budget plan. No matter how much the current opposition leader speaks about advocating the interests of the people and his unwillingness to cut wages and raise taxes, he will not be able to avoid this.

If the Greek situation had to do exclusively with this country, it would have been a local problem. However, Greece is a part of the euro-zone, and its possible default would automatically hit the majority of the EU countries. Therefore, various European countries are trying to find a recipe for improving the Greek economy. It seems that they will not be able to reach a mutually agreeable solution.

Germans are being the most "frugal" in this situation. Germany (as well as Holland and a number of Nordic countries) suggests that prior to getting assistance the Greeks still have to declare a default. According to the German economists, such developments will not lead to a collapse of the economy of the European Union, but would only reduce the rate of the euro and thus help reduce the cost of expensive German goods. Furthermore, Germany believes that it is time to attract private capital to the financing of Greece.

France and the European Central Bank have a different opinion on this subject. They strongly object to Greece declaring a default. Alternatively, bonds holders were offered to exchange their securities with a maturity of three years for longer-term ones in exchanged for certain benefits. Would this measure help Greece? This is a great question.

Neither the French nor the German recipes assume one thing: restructuring of the Greek economy that turned out to be very vulnerable. There are no minerals in the country, and engineering products and petrochemicals are unable to compete with the French or German ones. The natural conditions are not the most favorable for agriculture. The soils are rocky, and there is not enough moisture. The country will have to get subsidies from the EU.

Yes, there is tourism. Every year millions of people come to see the ruins of the Parthenon, or relax on the beaches of Crete. But in order for the Greek economy to be competitive, this is clearly not enough. For some time the country was pumped with unsecured foreign investments, but with the beginning of the crisis they flowed away, and Greece was left with nothing.

Will Germany want to modernize Greece and raise a competitor? It is unlikely that this is a part of its plans. If it does not want it to happen, they would have to coexist in the European Union with countries that would be unstable from time to time, regardless of the government in Athens. After all, no long-term anti-crisis "cushion" was offered to Greece.

What will happen with the oldest country in Europe? Maybe something will be clarified at the EU summit to be held on June 23-24. It looks like there will be suggestions to get rid of the symptoms of the Greek disease, but not its source.

Vadim Trukhachev

Read the original in Russian

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Author`s name Dmitry Sudakov