Public Service Europe on the Potential Greek Default

Labour Party

I have been quoted in an interesting article on the debt crisis in the Greece.  The article appeared on the excellent website Public Service Europe.  You can read it on the site by following the link here, but i have repoduced it in its entirety below.

Greek default could be Europe’s nadir

22 June 2011  |  by Dean Carroll

With predictions ranging from the collapse of the eurozone and the global banking system to the polar opposites of southern and northern Europe being partitioned financially, leaving the euro to the weak peripheral states while the likes of Germany and the Benelux countries create a new stronger common currency, economic forecasters have gone into overdrive. Citizens in Greece are withdrawing their money from banks and buying gold, instead, believing this is the safer option. Monthly bank withdrawals reached nearly £2bn in the first quarter of the year.Prime Minister George Papandreou may have won his parliamentary vote of confidence, by 155 votes to 143 with two abstentions, but it was a marginal victory. Whether his already-divided Socialist Party will triumph again at next week’s vote on one of the most-austere reform programmes attempted by any government in recent history – some €28bn in tax rises and spending cuts – remains to be seen. Individual politicians voting in the chamber, and thinking ahead to the next election, might reconsider sticking to party lines when the streets outside are degenerating into anarchy – led by Syntagma protestors. And the country’s €340bn debt equates to more than €30,000 euros per citizen or 150 per cent of annual GDP output. Can any government package, even one that privatises beloved beaches and lucrative tourist spots, really bridge such a financial chasm?

Well, Reuters reports that European Commission officials are planning a new bail-out to extend Greece’s year-old €110bn deal and fund it into late 2014 – with up to €60 billion of fresh loans. Some €1bn of EU cohesion funds could also be opened up to Greece early to trigger growth and reduce sharply rising unemployment. In fact, it seems unlikely that core Europe – Germany, France and the UK – will let Greece go to the wall. Even the US is doing all it can to prevent default. American banks are also badly exposed to Greek debt and the inter-linked credit default swaps, just as is the case with most of Europe.

Even though the Failed State Index says Greece is “by far the poorest performer with respect to deterioration in the political indicators”, such concerns may have to be put aside for now. As leading MEP blogger Mary Honeyball says: “If there is a time where we need to be pragmatic it is right now. If the right solution isn’t found, it will have dire consequences for us all.” Indeed, were Greece to fall, the solvency of the European Central Bank would be called into question. Especially – if Portugal, Ireland, Spain and Italy falter as a result of dented market confidence emanating from Greek default and the inevitable “abandon ship” by bond traders. But, again, the will of the Greek people rather than the European and international elites is likely to be the deciding factor when it comes to which painful path the country chooses out of its economic quagmire.

If Europe has not reached its nadir – with the MEPs’ expenses storm about to add to economic woes – it has certainly reached the “moment of truth”, as European Commission President José Manuel Barroso puts it. But there is still much to play for, if the political will and courage can be found to garner public support for reforms – both in Greece and across the European Union.