An alternative view of the crisis in Greece

February 17, 2010

Mark Bolsom1-150x150.jpg-Mark Bolsom is the Head of the UK Trading Desk at Travelex, the world’s largest non-bank FX payments specialist. The opinions expressed are his own.-

Greece has been dominating the headlines lately with many commentators heavily criticising its burgeoning deficits and perceived threat to eurozone stability. But is such heavy criticism really justified, or are the Greeks simply being made scapegoats for systematic failings? After all, Greece did not cause the current financial crisis, but is instead one of the major victims.

It is easy to argue that Greek policymakers have been irresponsible. When Greece joined the euro in 2001, the government borrowed huge amounts from markets. Public spending soared and public sector wages followed suite. However, tax evasion has also dogged the Greek system, and even though the economy boomed, tax receipts did not go up in line with earnings.

Consequently, when the financial crisis hit they were in a bad way. The problem now is that it looks like Greece may default on its debt repayments as their deficit is now at 12.7 percent of GDP – over 4 times higher than the eurozone growth and stability pact allows.

Nevertheless, every member state has breached EU guidelines at one time or another without facing severe sanctions. In 1996, for instance, the French government asked every bank for help in cutting its deficit. Italy also embellished their public finances to meet the entry requirements for the Economic and Monetary Union.

Questions remain over who exactly Greece is in debt to. In many cases, they are financial institutions that received government bailouts at the peak of the crisis, to prevent them from going under. It seems that these financial institutions are now applying pressure on Greek policymakers to deliver a credible deficit control package.

This includes slashing public spending, freezing or cutting public sector pay, raising taxes and even raising the retirement age. Greece has committed to reducing the budget deficit to 8.75 by the end of the year, and aims to bring the deficit to under 3 percent by 2012. It is difficult to know at this stage what this will do to Greece’s growth prospects in the next ten years, and how helpful these austerity measures will be.

It is surprising that more pressure isn’t being applied to financial institutions to help bail Greece out. The bail-out of the UK banks cost the government around 850 million pounds – in the U.S., the figure is nearer 3 trillion pounds.

In contrast, the International Monetary Fund estimated a Greek bailout would cost around 20 to 25 billion pounds. As one commentator said, in comparison, the Greek bailout would be “pocket change.” Certainly, if the Greeks are not bailed out, the consequences will be far reaching, limiting the Greek government’s ability to raise money and is driving the euro lower against other major currencies.

Social policy in Greece is likely to be impacted for years to come, prompting social unrest and the threat of general strikes. In short, whatever the final plan, the situation looks set to rumble on indefinitely.

Nobody is advocating the degree of fiscal irresponsibility that got Greece into this mess in the first place. But perhaps what would be helpful is that Greece received the same kind of financial support the banking world did in 2008, rather than the barrage of criticism that is terrifying the markets.

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Comments

Greece’s financial problems are the fault of it’s Politicians who lied and cheated their Country’s way into the Euro believing that it would resolve all their financial problems. Greece has the same problem as Spain, Italy, Portugal and some extent Ireland, TAX AVOIDANCE. From experience of living in Portugal, too many people avoid paying their taxes because the Government has such an archaic method of tax collection. It is no different in Spain or Italy. As time passes these Countries will end up like Greece because Politicians have been irresponsible. All they can focus on is the Euro Gravy Train which the net contributors keep putting more money into and the corrupt keep taking out. It will get much worse before it gets better, if anyone out there believes that the incumbent Politicians have enough credibility to sort it. Can’t see it happening!!

 

“Greece received the same kind of financial support the banking world did in 2008″

So they can do it again and again? As in virtually all years, Greece got almost $10 Billion in free money last year too, the largest welfare recipient in EU. Where did all that money go?
Germans retire at 67, Greeks at 60.
Germans pay taxes, Greeks don’t.
Greeks made the bed, Greeks must lie in it. Others have been warning them for a decade.

That 480 billion $ must be payed by Greeks, a crippling debt that will linger for ages. The interest alone will be around 25 Billion$ a year.

Posted by Kostas | Report as abusive
 

Basically we agree with your approach. The problem is that in an alternative view of the Greek Financial Crisis a lot more are to be said . Among them please allow us to post a portion of an article that is published at http://www.german-foreign-policy.com.

“The European Union has submitted to German demands, imposing unprecedented cuts in the Greek national budget, resulting in a large loss of jobs, cuts in wages and high increases in taxes.

This was caused by Berlin’s apprehension that Greece’s budget deficit could lead to a serious crisis and burden the Euro. Business circles are even speculating about an end to the European monetary union. The Greek government must now report to Brussels every two – three months and show evidence it has made drastic cuts in its state expenditures.

Berlin rejects financial aid from the International Monetary Fund (IMF) that it often imposes on non-European countries. This aid would be linked to conditions on the European Central Bank in Frankfurt. The demand that Athens take drastic austerity measures does not stop Berlin from pressuring Greece to buy expensive warplanes.

In Athens, the German foreign minister insisted, at the beginning of the week, that they acquire Eurofighter jets (made in Halbergmoos, Germany). Berlin’s austerity dictate is very controversial. A Nobel Prize laureate in economics accuses the German government of “deficit fetishism” and predicts that the measures will peter out with no effect.”

 

The EU countries were aware of the Greek deception about their financial status when they let them in to the Eurozone.

Greece has created and hidden its true debt levels successfully from the European Central Bank until last year.

The breakdown in the financial system and loss of wealth caused by the banks such as Goldman Sachs indulging in dangerous business practices without the intervention and regulation of Central Banks.

The ECB its working practices stand condemned they look like a bunch of incompetent dithering amateurs.

Or are they?

These are very clever people, in charge of our nations financial security and vicariously its civil and military security. So the Queen may ask quite rightly of her government “Why did you stand by and let it happen?” a very good question Maam, as yet unanswered. What damage, what loss, how could our own government and our intelligence and security services not protect their own people by nipping this in the bud. Are all our financial intelligence services so stupid? They are not.

So to Greece, it is a scapegoat and an example. Cheap credit WAS SUPPLIED TO greed and a culture of sleaze it has brought the Greek government to the point of default.

The message to Portugal, Ireland, and Spain is unequivocal, the Eurozone dominated by French and German interests have control and they are not afraid to demonstrate where power truly lies, it is the end of the Greek nation state, it is the end of sovereign nation status for all EU members including Britain.

And that appears to be the plan.

Greece has been fattened for slaughter, the offer of loss of sovereignty is an invitation for Greece to leave the EU, it could foment revolution. On the other hand it could be viewed as an opportunity for Greece to become the EU’s first subject territory by acknowledging its loss of statehood.

If I were Greek that would make be very angry. But I am British and I am convinced we should gather with like minded EU states, and there are many, to oppose and renegotiate a treaty which makes such arrogant behaviour possible.

Posted by phil | Report as abusive
 

As a reply to Kostas, please let me state the following:
http://en.wikipedia.org/wiki/Retire#Reti rement_in_Specific_Countries
The Greeks actually retire quite late on average, except for certain groups of people such as women with young children.

Country Early retirement age Normal retirement age Employed, 55-59 Employed, 60-64 Employed, 65-69 Employed, 70+
Austria 60 (57) 65 (60) 39% 7% 1% 0%
Belgium 60 65 45% 12% 1% 0%
Denmark none 65 77% 35% 9% 1%
England none 65 (60) 69% 40% 10% 2%
France 57 60 51% 12% 1% 0%
Germany 63 65 64% 23% 3% 0%
Greece 57 65 51% 31% 8% 1%
Italy 57 65 34% 12% 1% 0%
Netherlands 60 65 53% 22% 3% 0%
Spain 60 65 46% 22% 0% 0%
Sweden 61 65 78% 58% 5% 1%
Switzerland 63 65 77% 46% 7% 2%
United States 62 66 66% 43% 20% 5%

Posted by Eva | Report as abusive
 

What do I think? Hmmm, lets follow the money. Who benefits from all this?

Some speculators that play with Greece. Fair enough, we created our mess.
Eurozone economies benefit from the weak euro. A new Greek report every couple of months will keep the downward pressure without the anathema of QE in ECB.

The problem is who benefits from a strong dollar. Surely not US trying to recover from a resession. The only one that likes a strong dollar is someone who wants to get rid of his dollars. Who is selling dollars to all those investors that want to get out of the euro?

When all eyes are looking at Greece, I bet the real action is where no one looks.

Posted by Christos | Report as abusive
 

I am Greek but let me tell you, Greece is the Sicily of the Aegean, full of corrupted opportunists who seek to bribe and corrupt their way through to riches cause they know that the State mechanism is rotten to the core, with not one but various local and international mafias in operation and of course the elite mafia of the politicians of all parties and businessmen colluding to profit from plundering the taxpayer. The country’s course is predetermined… unless corruption is routed out starting with indictments for the politicians, discipline for the judges, convictions for tax evaders etc… unless Papandreou becomes Machiavelli… it’s unlikely that Greece will move to action

Posted by my other | Report as abusive
 

Things are simple. The biggest scam of the last few decades continious. The banks and those who run them, created the ‘crisis’ by trying to obtain more, not just money but control over the globalised world. After the governments bailed them out with people’s money, they decide to go after them to gain even more! This is not about money more. This is a direct threat to democracy. People vote for governments, not for financial markets. They should not make the rules, governments should. If Mrs Merkel and co do not act immediately and put these institutions into their rightful position they either don’t get it or they are just part of it. You choose!

Posted by VT | Report as abusive
 

The European Court of Human Rights recently decided that the parliamentary immunity regime in Greece violates basic human rights (Syngelidis v Greece), one would expect people to be up in arms and the media making it a front page in Greece. Instead… complete silence… like it never happened… they are all serving the same master, greed, it suits the Greek elite for the system to remain corrupt and rotten… poor Greek citizen… the sucker singled out for economic sacrifice for crimes committed by those who are telling him to sacrifice himself

Posted by myother | Report as abusive
 
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