Alexis Maguina (’13)
GREECE: The cradle of civilization; the homeland of Socrates, Plato and Aristotle; a society with a ubiquitous architectural style that can be seen all over the world; the originators of democracy; And of course, the inspiration for All-American favorites such as My Big Fat Greek Wedding, 300, and our collegiate Greek system. However, in recent years, Greece has been synonymous with the epicenter of the financial crisis that engulfs Europe.
The austerity bill passed by the Greek Parliament on February 13th sparked massive riots all over the country. The bill was necessary in order to receive a €130 billion bailout from the International Monetary Fund and the European Union and prevent defaulting on its debt payment due March 20th. While the European paymasters have welcomed the €3.3 million cuts in government spending, many Greeks were not so pleased. 150 stores were looted, 48 building were burned down and 40 deputies of the Greek Parliament were expelled from their political parties due to their unwillingness to support the bill. As the costs of the bailouts skyrocket and their popularity quickly diminishes (inside and outside of Greece), one must wonder whether Greece can be safe from its debt? And if so, what is the best option?
The EU seems to believe that in order for the Greek government to survive, Greece must accept an increase in taxes and dramatic cuts in government services in order to create a stable budget. However, raising taxes and collecting taxes are two very different things. As taxes become higher, investors will flee the country which will reduce wages and continue to contract the economy. Tax evasion, which is, and has always been extremely popular among Greeks, will increase: households and businesses will attempt to hold on to as much income as possible as the economy enters its fifth year of recession. Furthermore, it will be difficult for the current politicians to stay in power as living standards spiral down and people become less tolerant of the adversity they have to encounter. The politicians that will be elected under these circumstances will be much less supportive of austerity and unwilling to easily acquiesce to international demands.
On the other hand, Greece only holds 2% of the Eurozone’s gross domestic product (GDP) and 4% of the total Eurozone debt. It seems astonishing that the EU is fixated in saving Greece while Italy and Spain (the fourth and fifth largest economies in Europe respectively) are in such financial distress. So far, the argument coming out of Brussels has been that a default of the Greek debt would be devastating to the Eurozone and the Greek society. According to the EU, failure for Greece to repay its debt (much of which is held by European banks) would cause a financial collapse equal or greater than the failure of Lehman Brothers in the United States. It would also cause an innumerable amount of broken contracts, inside and outside of Greece, which would take years to resolve.
The problem here is that the European Union is attempting to answer an economical problem with a political mentality. It is in part trying to answer the question that the US answered during the Civil War: Can individual sections abandon the Union? Brussels believes that they should not and has mainly focused on saving Greece in order for it to serve as a precedent. Unfortunately, they have mainly focused on increasing taxes and lowering spending rather than reforming an economy that is clearly not efficient enough to be competitive in the international market. The main effect of the bailouts has been to temporarily stabilize Greece while other countries prepare their financial system to receive the ripple effect that this nation’s potential collapse could cause. If the EU truly wishes to save Greece, then it must form a stronger fiscal union and be willing to work with the Greek Parliament to reform the role of the State and free the economy. Anything short of this will be delaying the inevitable collapse of the country’s economy.