Greece: The EU’s economic conundrum July 10, 2011Posted by Yilan in EU, European Union, Yunanistan.
Tags: EU, Greece
For over 15 months, Greece has been embroiled in one of the most serious economic and monetary crises in recent decades. Finance ministers and heads of state of the European Union have made great efforts to save the country and extricate it from the crisis because European policymakers are very concerned about the contagious effect the Greek crisis could have on other countries of the euro zone.
Many political analysts believe that the new measures taken by the EU to deal with the financial crisis in Greece represent a major change in the monetary policies of the EU. In other words, it is the most important reform that has been implemented since the establishment of the EU’s official currency, the euro, in 1999.
To solve the crisis, the leaders of the EU have decided to give Greece a €110 billion financial assistance package. The International Monetary Fund has also agreed to provide 30 billion euros of this financial assistance package in order to play a role in solving the crisis.
The €110 billion rescue package was actually devised to ensure that Greece does not default on its debts and to prevent such a phenomenon from occurring in other countries of the euro zone. As one of the conditions of this package, Greece must agree to make significant reforms in its economic system through the adoption of austerity measures. However, Greek protesters have gathered in front of the country’s parliament over the past month, chanting slogans and demanding that the government reject the plan.
If, as a result of the current debt crisis, Greece defaults on its debts, the crisis could spread to other countries of the euro zone. During the recent meeting of euro zone finance ministers in Luxembourg, the Belgian finance minister stated that if Greece defaults on its debts, other European countries, such as Portugal, Ireland, Spain, Italy, and even France and Belgium, could soon follow suit. Greece’s debt is currently over 300 billion euros, which is 150 percent of the country’s GDP and much higher than the ceiling specified in the Maastricht Treaty.
In Luxembourg, the EU finance ministers agreed to offer a financial assistance package to Greece that would include voluntary participation by the private sector. However, all of the details of the new financial assistance package were not announced.
According to this new plan, over 120 billion euros would be provided to Greece by 2014. The package consists of €60 billion in the form of official EU funding, €30 billion that would be provided by the European private sector, and €30 billion that would be provided by the Greek private sector.
However, the plan has been rejected by the European Central Bank because its economists believe that the participation of the private sector in the financial assistance package for Greece would decrease the credit rating of euro zone countries.
Increased debt and budget deficits in euro zone countries have created an extremely bleak outlook for the EU. It is not yet clear what country will be the next to fall victim to the current debt crisis, but Greek officials have warned that if the new financial assistance package is not provided by mid-July, the country will default on its debts. More than anyone else, the negative effects of such a situation would harm Greek citizens and would result in the expulsion of the country from the euro zone. Obviously, this would also have negative consequences for other EU members, especially the countries that use the euro as their currency.
Clearly, the Greek government’s decision to adopt severe austerity measures is the main cause of the recent unrest in the country. However, these measures have been adopted in recent years under pressure from the EU and the IMF. In fact, as a result of wrong EU policies, European Union countries are witnessing a new level of social unrest, which could have more negative effects in the future.
In an open letter to the Greek government dated July 10, several of the world’s leading economists warned that the new package is the last chance for the Greek government to implement economic reforms and if it does not agree to the plan, the country’s economy could fall to the level of Third World countries.
Now, many political analysts are doubtful about the prospects for a united and integrated Europe. Greece was the first victim but no one knows what country will be the next.
Dr. Said Khaloozadeh teaches political science at the University of Tehran and is a political adviser of the Iranian Foreign Ministry.