Usually when the word default is used it refers to a person or a business, and not a country–until now. With Greece, there are economists, and speculators no less, that have been saying it will likely default on some if not all of the loans it used to prop up its failing economy. What’s the old adage? If we don’t learn from history, we are doomed to repeat it.
To get an understanding of why Greece’s economy is in such poor shape, we must look to the past. Wall Street Journal reporter Constantin Collmer wrote in the 1980s an article entitled “Europe: Time Is Running Out for Greece’s Economy,” where the economy of Greece was struggling under a burden of debt ($16 billion) and deficits running 17 percent of its gross domestic product. At the time the government of Andreas Papandreou sought to socialize the Greek economy by tying the wages of workers to a price index, and in doing so, when the cost of goods and services increased, so did the wages and salaries to compensate; a vicious cycle.
With over 700,000 government employees that work almost without fear of being fired and trade union representatives who receive special protection, these facts add to the growing concerns that Prime Minister Papandreou has been slow in implementing enough austere measures to reassure investors in the strength of the economy. All of which weakens the Greek economy and makes it less competitive with the Western world, Collmer concludes.
Fast-forward to 2010. Greece’s current Prime Minister, George Papandreou–the son of former Prime Minister Andreas Papandreou–also struggles with an enormous debt (300 billion according to a New York Times article) and deficits near 10 percent GDP, with concerns that his austere measures are inadequate. Sound familiar? Looks like the apple doesn’t fall far from the tree.
Katie Martin of the Dow Jones newswire writes that Greece is no longer the target of foreign investors fear, as it has shifted to Spain. CajaSur, a small bank which had recently been absorbed by The Bank of Spain because it became insolvent, now brings more questions of confidence in the euro zone and its currency the euro. While Greece was pleading to the IMF (International Monetary Fund) and the European Central Bank for a bailout, some have speculated that other countries like Spain, Italy, Ireland, and Portugal will be next in line.
The irony here is that Greece and Spain appear to be a microcosm of the United States as it has been forecast that our deficits will be running greater than 10 percent of the GDP. Did the bailouts of our banking and financial system help or hurt our economy? Perhaps watching the countries of the eurozone and how they fare will be a forecast of things to come. I guess we’ll have to wait and see.
