The Greek bailout is a heated topic of discussion over the last two years. There are those in favor and those against. Those that believe that Greece should go bankrupt and those that support a rescue plan. There are economists, politicians and businesspeople with differing objectives and audiences preaching their views with passion. It’s very difficult to be informed and follow all aspects of the topic. Although Greece is in the epicenter of the discussion there are further repercussions from the action taken there.
We won’t cover the issues that led to the Greek problem here. We will only attempt to highlight some reasons behind the wide coverage that the Greek issue receives. This extensive interest might sound strange considering the rather small size of Greece’s debt and economy relative to the European Union. It’s also unexpected to see some newly developed support towards Greece. Some in Greece might be delighted with that; however this support shouldn’t be necessarily taken at face value. There may be certain hidden motives behind that. The following list is not inclusive but attempts to highlight some of them:
• Eurosceptics: Not everybody is in favor of strengthening the decision making process and powers of the European Union. Problems emanating from Greece and other economies if escalated can cast some doubts upon EU’s ability to handle such issues, at least under its current form. Some might even go as far as recommend writing-off the debt as a sign of leniency towards Greeks but do not expand on the repercussion if other EU countries or even countries outside the EU will likewise ask for the same treatment. Probably this act would be detrimental to the EU’s finances. Talk is cheap for the supporters of these views; they probably hold no position in the Greek debt or may even have invested on its default. On the other hand tax payers in Northern Europe that are critical of Greece’s economy are also going to foot the bill in the end. Some in Greece and elsewhere believe that this generosity is due to fear that a Greek default would create havoc; on the other hand these fears might be overplayed. They also point out to a potential “sell-off” of Greek assets; although these assets and their management where not able to avert the crisis up to now. In any case the criticism lays the finger on well known problems of the Greek economy that have made many Greeks suffer up to now; it’s probably the way it’s expressed that annoys; but then again all criticisms are annoying.
• Corporatists and power brokers: by this we refer to the corporatist nature of the Greek economy. Under the current model the economy was energized by state funds that were funneled through public sector payrolls and infrastructure investment to consumption, while some leaked away to the undercover economy. In any case the public sector, professional groups and small businesses worked in tandem through an interwoven grid of common interests. This model has reached its limitation due to the lack of access to sovereign debt markets. Change for many will not be easy; hence the unrest.
• Speculators: there’s a lot of money to be made in foreign exchange, sovereign debt and stock markets globally. In the aftermath of the 2008-09 crisis massive amounts of capital moved to macro funds that since then are doing pretty well. Each time that the Greek issue looks like heading to a deadlock then doubts over the Euro’s long term viability are granted and speculation can run rampant. A lot of money can be made in this trade. Capital markets can act more quickly than political systems in taking advantage of market panic or optimism. Don’t forget the fortunes made with the sterling’s exit from the ECU in 1992.
• Bigots: there are people within the European Union and elsewhere that would prefer Greece and other countries outside the European Union. Mistrust, even reservation between Europe’s south and the north exists; these feelings in some people can be magnified in difficult times. In this context many have found the opportunity to support Greece’s exit from the Euro, even the EU claiming that this will be to its benefit, it will better suit it’s economy. No discussion off course on whether this would solve Greece’s problems in the medium to long term.
• Economic debate: it won’t be surprising to see in future textbooks Greece feature as a case study on economic policy. The theoretical debate in developed but aging economies is whether to sustain the high cost of living and social welfare by increasing taxes and national debt or curb entitlements. This is an ongoing discussion in the US and elsewhere. Apart from the opinion that prevails in the end; the Greek case may not be the most suitable example for this discussion. For example the massive Greek public sector, low tax revenue base and labor productivity is not comparable to that of other western economies. What might work in one environment might be tragic in Greece and vice versa. However, the theoretical debate and prejudices complicate action taking on the ground.
As said this list is not inclusive. There’s more in to come as history is made.
The articles published here do not necessarily reflect the views of the Transatlantic Business Forum.