The recent austerity drive, a condition imposed on Greece because of bailout, led to widespread protests in which three people died. This strike, that turned violent, will test the government’s commitment to implement harsh, but not popular, measures to save the economy. The Greek government can neither turn its back on the conditions of the deal nor can it afford to go against the wishes of its people. The crisis plaguing Greece can set the precedence for European Financial Crisis akin to the Asian Financial Crisis of ‘97-‘98. The bailout “gift” of €110 Billion from Euro-zone and International Monetary Fund (IMF) will be nothing but waste unless Athens sticks to harsh austerity measures. The past few weeks shook the confidence of European Union (EU) in one-single-Europe with German Chancellor Angela Merkel wanting the IMF to help save Greece. How the bailout money will be used, is yet to be seen but the partial amount will help Greece not to default its May 19 payment. The three year loan assumes that Athens will be able to borrow from the markets by 2012; nothing wrong with a pinch of optimism in the time of crisis. The bailout did the initial damage control when yields on 10-year Greek bonds rose to over 9 percent. The austerity measures, conditioned on Athens, were widely unpopular with Greeks and more importantly with the Papandreou government. The bill that sought a public wage reduction was passed amid widespread protests. The austerity conditions, to be imposed, include harsh measures that may spell a doom for Papandreou in the next elections unless Greece sees a drastic reversal of fortune. The whole world will be eager to watch how and when the government will implement the massive tax increases and budget cuts, and how confident will the investors be once the measures have been implemented. Right now, the investors have no confidence in the Greek economy. The Euro too dropped to its lowest level since April 2009 against dollar amid fears that Greece crisis will soon affect other Euro-zone countries, the usual suspects being Portugal, Spain and Italy. The official unemployment figure in Spain is high with around 4.6 million out of work. Propelled by collapse of credit-based housing and construction bubble, the growth prospects appear bleak. The yields on 10-year Spanish bonds have reached around 4.3 percent. With the yields rising in Portugal, the borrowing from market may soon become unbearable to the Portuguese. With the rating agencies downgrading, many from the government of these beleaguered nations are blaming the “speculations” for their quagmire. The rating agencies show the confidence the investors have, and one can hardly blame the investors when the debt is on its way to become junk. Why wasn’t the Greek economy, beleaguered that it was, allowed to get busted? With a left-of-the-center government in power and with the debt rising because of bailout, Greece cannot afford to bleed more. The toxicity of Greece will soon spread to Portugal and Spain. If Spain and Portugal don’t resort to harsh austerity drive soon, we will see another massive Euro-zone and IMF bailout. The bailout was an unpopular idea among Germans, and another massive bailout will not be appreciated not only in Germany but also in France. With two major economies of EU hesitant to help other Euro-zone countries, not only will the investors be driven away but also the Europeans will lose faith in EU as one-single entity. What good is the unity when fellow brothers and sisters cannot help each other? What good is the unity when in difficult times the regions want to act independently? A default would have paved the way for restructuring and a new beginning. A default would have also meant Greece making an exit from EU. Greece is not a major player in the EU economy but, Spain and Italy, another country with high debt and deficit, are. A default by the major players would have a destabilizing effect on EU since the countries with no collateral with the Central Bank will naturally exit the EU. Either way one sees a dent in the confidence in Euro-zone and possibly losing faith in Europe as a whole. It all boils down to how fast the troubled nations can get their acts straight. Does it mean the European Dream is going to end?
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Mr. Abhishek Joshi serves as associate editor of The Seoul Times. He graduated from the School of Electrical Engineering of Seoul National University. He was also a member of SNU Quill, first English magazine from Seoul National University, as a writer.
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