Vanity Fair: Beware of Greeks Bearing Bonds
CNN: Q&A: Greece's Financial Crisis Explained
In late 2009, the Pasok Party came to power in Greece, replacing the more conservative New Democracy Party. Following the transition, the new government officials discovered that the Greek economy was in shambles. The new Prime Minister, George Papandreou, decided that he had to come clean about the financial state of the country. He revealed years' worth of fixed statistics and added Greece to the list of countries facing economic ruin following the global financial crisis.
So what went wrong in Greece? Fraud, unrestrained spending, cheap lending, and little to no governmental oversight over tax payments and financial institutions all played a role. Public sector spending grew significantly. In the past ten years, the salary for the average government employee doubled, making it three times that of a Greek working in the private sector. The retirement age in Greece is also quite low; for most jobs, it is 55 years for men and 50 years for women, at which point retirees are entitled to collect generous pensions from the government.
Greece also has a serious tax enforcement problem, and it is common knowledge that most individuals and corporations do not pay what they owe. If an individual was to get caught cheating on his taxes, he could probably bribe the tax collector and resolve the issue. The court systems are notoriously inefficient in Greece, and cases may take up to 15 years to resolve. So, it is likely that even if someone did get caught cheating on his or her taxes, nothing would ever come of it.
Greek officials have also been manipulating the country's financial statistics for years. Since Greece adopted the Euro, it has had to maintain budget deficits below 3% G.D.P. In 2009, however, an International Monetary Fund ("IMF") investigation revealed that Greece's actual budget deficit was closer to 15%, suggesting that the numbers had been inaccurate all along and that Greece had violated euro zone rules.
This financial crisis resulted in the IMF and the European Central Bank ("ECB") loaning Greece, a nation of 11 million people, €110 billion ($145 billion), when Greece had an estimated $414 billion in total debts. Now, the global community is waiting to see how Greece will get out of this mountain of debt. If Greece defaults on its debt, the result could be disastrous for all of Europe.
Discussion: Should Europe have provided so much assistance to Greece after it became clear that Greece had manipulated statistics to show that its economy was much stronger than it was?
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3 comments:
I think Europe was between a proverbial rock and a hard place. Not helping Greece would send a message to all EU Member States that, in essence, they have to follow all the regulations and restrictions placed upon them by membership in the EU, but when they need financial and economic help, they should look elsewhere. On the other hand, by providing nearly $150 billion in assistance to Greece, the message was fairly clear to all other Member States: regardless of how inaccurate the data and irresponsible the spending, the EU will bail out any one of its Member States.
Greece was similar to many of the banks that required bail out funds from the US Treasury during the 2008 economic crisis (JP Morgan, Citigroup, Bank of America to name a few) in that they were subject to the "too big to fail" phenomenon. In the end, the EU decided that Greece was too big to fail.
It may sound a little cold and heartless, but why should Greece's endemic corruption and fiscal irresponsibility be allowed to bring down member nations who have been responsible in their financial dealings?
Greece is so messed up that it needs to be walled off from Europe and handed back to the Turks!!! EVERYONE cheats in Greece---from Greek Financial Minister PappaChristos who erased four family members of a list of millionaire tax cheats to little Zorba the cab driver who I scream at to "Drop the flag so you can pay your taxes!!!"
MY FIX? ClawBack the $3.8 Billion Greece paid Bear Sterns to "juice the books" in order to join the Euro 2.) Shutter the Greek National RR (400K employees for200k paying passengers? 3. Privatization of tax collection---no greek has paid taxes in Athens since the Spartians were in charge. 4. Seize all overseas undeclared money accounts for billionsaites. 5. Raise Retirement age to 70 men/women. 6. Roll back state jobs to pre 2005 levels 7. Legaliz marihuana and tax it 7. Imprision every theif legislator that juiced the books'.
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