This Wildcard Wednesday is an article written by Laurens van der Windt, from MyBlogGuest.Com and who works for searchstarz.com.
{Editor’s Note: His explanation of the situation in Greece mimics that of the United States, the main difference being that the process is slower here under the inertia of a much larger economy. There are truly lessons to be learned in this.}
Next week there will be a key meeting between the ministers of the euro zone and this will be vital for Greece, as it may determine whether or not they remain in the Euro. This week Greece held talks with foreign lenders to tide over £2 billion of rigid cuts. Athens has been negotiating for weeks about 12 billion euros of cuts that they want signed off by the European Union and the International Monetary Fund because they don’t have the money.
At the labour ministry, dozens of Greeks barricaded the doors and protested against the cuts with the austerity budget set to cut health, defense and benefits. Although Greece wants to start living on a tight budget, they failed to convince the European Commission and IMF lenders and Central Bank (troika) about this, as doubts rage on about the effectiveness of the cuts. Let’s have a look at why Greece is in this precarious situation in the first place.
Greece ditched the drachma and converted to the [[euro]] in 2001. At that time they became the 12th country to join the European currency, but the president of the Central Bank at the time, Wim Duisenberg, warned that Greece had to bring inflation under control and improve its economy. Two years prior to that, Greece had failed to meet the economic criteria required to join the euro and after two years of making deep cuts in public spending, in 2001 Greece got the green light for joining the euro.
After they joined the euro however, public spending soared. Between 1999 and 2007 public sector wages rose by 50% and that is far faster than any other country in the eurozone. At the same time, income was hit by exhaustive tax evasion. After years of overspending and lack of income, the financial situation spiraled out of control. Therefore, Greece was not able to cope with the global financial downturn. Debt levels reached a critical point and Greece was forced to ask for help from the International Monetary Fund (IMF) and its European partners because they could no longer repay its loans.
To aid the Greek government, the European Union (EU) and the IMF provided $140 billion of cheap loans to Greece to pay their creditors. Another $130 bailout loan was given to them this year by the EU and the IMF and most of Greece’s private creditors have written off more than half of the debts owed to them. Private creditors also agreed to lower the rate of interest on existing loans. In return the EU and IMF urge that the Greek government major spending cuts and tax rises. Greek inhabitants protest against the cuts, but on the other hand they do want to stay in the euro. Greece will be forced to leave the euro if their European partners are no longer willing to help them financially or when the Greek population collectively start to rebel against the government because of falling living standards. At the moment though, the Greek government, their population and the European partners all want Greek to remain a euro country, regardless of their effects on the euro exchange rates.