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Thursday, April 23, 2009

WORLD

Greece slides a bit closer to bankruptcy

Riots and strikes are hitting Athens as Greece’s debt balloons

Greece slides a bit closer to bankruptcyGreece’s economy will post zero growth this year, according to Bank of Greece governor George Provopoulos, and concern is growing that the Mediterranean nation is perilously close to bankruptcy. “The country is dancing on a volcano,” political scientist Kalliope Amyg told Der Spiegel. “Nobody wants to see it, but everyone is afraid of it.”

Years of corruption, bloated budgets and bureaucracies have left Greece with a public debt worth 95 per cent of its GDP. (In the U.S., by comparison, public debt just topped 50 per cent.) In January it was the first euro-zone nation to have its sovereign debt rating downgraded by Standard & Poor’s. This summer, its tourism sector is expected to be devastated, and there are fears that its banks, which invested heavily in central and eastern Europe, will be dragged down by that region’s severe contraction.

Last month Otto Bernhardt, a member of Germany’s Christian Democratic Union (CDU), told Reuters that euro-zone members were prepared to rescue economically fragile nations such as Greece and Ireland if they collapsed. But with Athens yet again expected to exceed the euro zone’s three-per-cent cap on budget deficits, Europe’s patience is wearing thin. Euro-zone finance ministers unanimously threatened sanctions or even fines if Athens didn’t get its house in order.

In response, Greece’s government has frozen civil servant wages, raised a one-time tax on high earners and promised to crack down on tax evasion. Yet as the fiscal situation deteriorates and demonstrations and strikes become more common, the government has remained strangely upbeat. Recently, Secretary General of Information Panos Livadas said the economy is “really indestructible. I don’t understand these international assessments.”

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