Greece, the new European challenge

This year 2010, Greece’s debts will sky-rocket to 120 % of the country’s GDP, after its public deficit soared to 12.7% of the GDP in 2009. As a result, the three international rating agencies Fitch, Standard & Poor’s and Moody’s have all scaled down Greece’s credit rating. The State’s bonds have dropped from A1 to A2 with a negative outlook.
The country promises to get back on its tracks in 2012, but to do so, it needs to amass 26 billion euros in the space of 36 months. To get there, the government is backing an overhaul of insurance and retirement systems, a lowering of salaries in the public service, and fighting against tax fraud, which entails a deep change in mentality. The 2010 budget, voted in at the end of December by the country’s deputies, aims to cut the deficit by 3.6% this year.
Athens has consequently two challenges to meet: firstly, prove its willpower to get its public accounts in order as soon as possible and secondly, restore its credibility. Since it joined the euro zone in 2001, Greece has been caught out time and time again by the reality of its economic statistics. Said to be 6% at the start of the year, deficits have proven to be twice this figure. Given this deception, the country is now cast in the position of clandestine passenger in the euro zone. Other member states are little inclined to agree to finance a country that gives the impression of not playing according to the rules.
What about EU solidarity?
The European Union is worried about the situation, but has already warned that it will not fly to the rescue of Athens, thinking that the best tactic is to put maximum pressure on the country. A delegation of European experts has made a visit to the Greek capital to examine the new stability and growth programme it is to submit to Europe at the end of January. “The markets are deluding themselves when they think at a certain point the other member states will put their hands on their wallets to save Greece,” stated Jürgen Stark, Executive Board Member of the ECB in an board in an interview with the Italian economic daily paper Il Sole 24 Ore. “The Treaties envisage the non-rescue clause and the rules must be respected.”
Whilst the spectre of bankruptcy looms, Jean-Claude Juncker, Head of Eurogroupe, tries to remain reassuring. In his opinion, state bankruptcy in Greece is “completely excluded.” However, others seem more concerned, including German Chancellor Angela Merkel. “What happens in one member state affects all others, especially as we have a common currency which means we have a common responsibility,” she opines regarding Greece. Stock exchange markets and the euro are visibly shaken. The European Union fears that the situation may spread to its most indebted countries, such as Spain and Portugal. If these concerns prove grounded, the issue of communitarian solidarity, even if it is not foreseen in the texts, will be raised.