Like many other countries, the Greek government relied on borrowed money to balance its books. What made things worst was that the newly elected (October 2009) Greek government radically revised up the country’s budget deficit figures from 6 per cent of GDP to about 13 per cent of GDP. It triggered a disastrous loss in market confidence across the globe. As a result, various financial ratings agencies lowered their credit rating for the country and the Greek government, already struggling to pay back the 300 billion dollar debt, had to suddenly face an abrupt rise in its debt-servicing costs!

In February 2010, European leaders pledged to take concrete steps to prevent the Greek default and to ensure Euro’s stability. But the differing national interests within the European Union didn’t allow them to reach a consensus on the emergency aid plan for Greece. Nevertheless, in April, 2010, EU leaders came up with a bailout plan, according to which, Greece will receive 110 billion euros, and Euro partners and the IMF will effectively cover Greek credit requirements for the next three years at an interest rate of mere 5 percent per year. However, it was subject to the condition that Greece will have to bring its deficit to under 3 percent of GDP by 2014.

Under tremendous financial pressure, the Greek government announced tough austerity measures such as a rise in the retirement age by two years, a public sector pay freeze and a crackdown on tax evasion. End-of-year bonuses for all public sector workers have been cancelled, and retirement pensions reduced by 14 percent. The government also announced a hike in VAT rates and tax rises on fuel, tobacco, alcohol and property.

But, why should people of Greece pay for the crisis? The Greek population is already very upset about the social impact of these measures. There have been warnings of resistance from various sectors of society; for instance, the workers nationwide have staged strikes closing airports, government offices, courts and schools.

To me, at least, it seems that this could have been largely avoided, had the current Athenian rulers been little more wiser!

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This entry was posted on Monday, June 7th, 2010 at 5:55 pm and is filed under Global Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.