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Imagine being the father of a middle class Greek family. The father wakes up, tends to his children, and then looks into the pantry only to find it empty. He then checks his bank account; he has insufficient funds. Due to losing his job last year, he has not been able to adequately feed his family. So for the third time this week he takes his family to the local soup kitchen, where he meets up with a few family friends also in line waiting for food.
This story is not uncommon in the recent years of the Grecian financial crisis; the human cost of Greece’s debt is quite profound, and many families are in a tight financial situation because of it. Currently, over 25% of the Grecian population is unemployed (CNN 1).
To put that into perspective, America has just reached an unemployment level of about 9%. What caused Greece’s economic collapse? How does this affect the EU as a whole? Is Greece content with the bailout measures that the EU and IMF have placed? These questions will be addressed throughout the course of this paper.
Ultimately, Greece’s financial crisis has affected the entirety of the EU because of EU’s interconnectedness as a union, and Greece and the EU’s relationship will continue to remain unstable.
In order to further analyze the globalization processes taking place within the EU, it is necessary to offer a short history of Greece’s debt. The debt’s influence can be dated back to 1974, when the current multi-democratic political system in place today was established, replacing an outdated military-oriented system.
This was seen globally as a step towards positive change. The country that founded modern democracy was returning back to its roots. And the world was essentially right; Greece saw immediate constructive alterations to its economy (McGinnis 1). The government started spending heavily on public sectors and social welfare benefits for lower and middle class families.
Taxes were low, minimum wage was high, and the retirement age when one receives benefits was staggeringly low as well. With these economic achievements, Greece was looking to become a global power in the world market. In the early 2000s, Greece became the fastest growing economy in Europe. But the government did not control its spending during these times. Budgets were not balanced, and revenue was not being collected. But because of Greece’s fervent desire to become a powerful economy, spending increased during their economic upturn. However, as it is commonly known, the common business cycle shows that whenever an economic upturn occurs, a downturn is imminent. During the early 2000s, both businesses and middle-class families alike were evading taxes.
Furthermore, the newly established government lacked the political muscle to reinforce their taxation system (Krieg 1). The equation quickly became high spending plus low receiving. The inevitable result equals debt. As the 2000s came to a close, Greece plunged further and further into debt. Meanwhile, many global economic powers such as the United States, Spain, and Italy all begin their own versions of financial crises, all relating back to debt. So where can Greece go for help if many other countries are experiencing a similar budget deficit? This seems to be the million dollar question, but for now, they have sought the help of their governing authorities, the European Union and the International Monetary Fund. Sustaining a recession for four consecutive years (with a projected fifth), Greece is in dire need of austerity measures. Austerity is a tool to minimize debt through reducing spending through budget cuts and increasing revenue through taxes. In order for Greece to receive bailout money from the EU or IMF, the Grecian government had to have placed clear austerity measures showing that it will use the money wisely.
In 2010, after a hearing between the Parliament, the EU, and the IMF, the EU and IMF agreed to loan out 43 billion euros in small installments. According to an International Monetary Fund report, this was not enough money to keep Greece afloat (IMF 83). Just recently, Greece and the EU/IMF have agreed on a second round of bailout that is once again contingent on placing austerity measures. Greece has voted on austerity measures, and out of their 300 members of their Parliament, 128 of them did not agree. Because the majority voted for austerity, the EU and IMF have agreed to supply Greece with an additional 130 billion euros in small payments through 2014 (Reuters 1).
The results of these controversial decisions have troubled the citizens of Greece and have resulted in numerous riots and protests against their own Parliament. Through 2009, 100 buildings throughout Greece have been burned down due to riots, nine of them being national heritage buildings (“Greece riots destroy historic buildings” 1). More recent protests have been outside the Parliament building, where some 800,000 coagulated to outwardly portray their opinion. Why are these decisions so controversial and why do the citizens so fervently disagree with them? Part of the austerity measures the Parliament agreed upon was higher taxes, lowering the minimum wage, and increasing the retirement age to 67 when one can receive social benefits (“Greece passes crucial austerity bill” 1). This is socially catastrophic, and the citizens of Greece cannot possibly handle these types of budget cuts. But the Grecian government was forced to place these measures by the EU and IMF. Obviously the citizens, Parliament, and EU all are trying to achieve sustainability through different means.
The background information on Greece will help paint a more vivid picture when discussing the rocky relationship between the EU and the Grecian government. According to Dionyssis G. Dimitrakopoulos and Argyre S. Passas, two economists who specialize in Grecian economics, argue that the EU and Greece have never had a stabilized relationship. The EU is basically an attempt to unify all countries into a free transit market of goods and one outstanding law. One can see instantly the problems with this; every country has a different culture, language, history, and philosophy. Because of these problems, the EU has failed to accommodate for every member-state. These two authors claim that the Grecian government has a naturally defensive and highly reactive way of policy-making. They undeniably see the EU as an entity that is attempting to reform their laws in a negative fashion. This obviously poses difficulties, for how is the EU supposed to cooperate with a rebellious member-state? The answer seems evasive.
The problem delves even further; the history of Greece’s policy-making decisions is riddled with unsustainability. The authors prove further that policies are decided on individuals although there is an established Parliament. The policies are completely contingent on who knows who, and although they rely on the individual’s skills and knowledge, they completely lack accountability. In their words, “It is a system couched primarily on informal, ad hoc practices rather than on institutional procedures even though formal arrangements actually exist. It depends on individuals’ skills and capacities and personal networks…” (Dimitrakopoulos 5). They go on to say that this system is in place of a collective mechanism that should be institutional. With that being said, imagine a towering authority coming in and telling these policy-makers to change what they have been doing and abide by a market structure that incorporates their surrounding countries. It seems as if Greece wants nothing to do with its neighbors, thus the unstable relationship between Greece and the EU grows every day, especially in the face of such a financial meltdown.
Additionally, in the late 1990s, Greece had the single most cases in the European Court of Justice, or ECJ, than any other European country. This automatically shows that Greece is disobedient to the EU. Most of the cases had to do with single-market infrastructure breaches, meaning that Greece was unwilling to comply with how the European Union market structure works (Dimitrakopoulos 4). Should Greece have even joined the EU if the government disagrees with its policy-making philosophy? Perhaps the changing times with everyone else joining the EU forced them to.
Grecian citizens also enjoy being in the EU. To be able to go into neighboring countries and use the same currency and have a sense of unity knowing that everyone is under the same binding law must feel similar to U.S. citizens crossing state borders. It has also been shown that Grecian citizens have not necessarily enjoyed their government’s policy-making decisions. Who wants to live under a power that is non-unified, defensive, reactive, and uses personal networks to make business decisions? It can be inferred that many citizens welcomed the EU to come in and perhaps shape up the Grecian political system that obviously is not able to handle a country’s budget. Similar to Greece moving from a militant system to a multi-democratic system, joining the EU must have felt like a positive change.
Now, with their insecure relationship, think about how the EU is currently giving Greece 130 billion euros though 2014. Imagine the reluctance to do so. One can compare the Grecian bailout similar to the U.S. financial crisis. When the U.S. first plunged into debt in late 2007, banks such as Chase and Bank of America, car companies such as General Motors and Ford, and mortgage companies such as Fannie Mae and Freddie Mac were all about to go under.
One can foresee the instant global meltdown if these institutions simply failed to operate. Thus, the government had to intervene and hand out free bailout money so that these companies could pay off their debts and begin to recover. These firms were “too big to fail,” a phrase commonly used during the American economic meltdown. Similarly, Greece is a member-state, although one of the smaller ones, that is just too big to fail. If Greece received no help from the EU/IMF, Greece would ultimately be unable to operate properly. Although it can be argued that Greece is not operating properly even with the bailout money, imagine the complete market failure that would ensue if Greece was left dead in the water with their own debt to drown in. This would hurt the EU as a whole; all member-states would suffer.
This brings up an interesting point: even if Greece did not agree on the EU/IMF austerity measures, they probably would have bailed Greece out anyway. How can they deny Greece money when their collapse must be avoided at all costs? Greece clearly did not place the austerity measures they agreed upon in their first round of bailout; according to the authors of National Intellectual Capital and the Financial Crisis in Greece, Italy, Portugal, and
Spain, Greece’s debt in the public sector after the first bailout actually rose in 2011 to 166% of their GDP, comparable to 2010 when the debt was 143% of their GDP (Lin 55). Despite this, the EU still has to continue to help them. This is not a healthy relationship between the two, of course, but it is a necessary one.
Additionally, it is important to note that the EU does not want to help Greece because other countries are experiencing economic downturns as well. Presently, the EU and IMF have to bail out Portugal due to of similar problems. But Greece needs it, now more than ever. The Grecian government also needs to meet domestic demand and please its citizens. Although the government is not doing a profound job at it so far, it can be predicted that since the Grecian government knows its survival is so imperative, it is unlikely to implement the austerity measures it sworn to; this would cause the Grecian citizens to relax a little more.Greece’s inability to instill these measures might result in a third round of bailout. This prediction is also supported by the fact that the first round of bailout money was met by incompetent austerity measures and thus, further debt. One can only hope that the EU will be able to support such financial challenges in the coming future.
The Grecian financial crisis is one of the most catastrophic collapses a country has ever seen in modern history. Many Grecian citizens have had much of their property and money stripped away because of a failed government policy-making system. Greece’s debt has already had influence on the EU, for the EU has to allocate its limited funds wisely; and if the EU is giving money to help Greece, it cannot help another member-state. The interconnectedness of the EU can prove challenging, making this economic globalization of Europe one of the most complex market systems of today.
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