News / Europe

Greek Debt Crisis Affects Europe, World Economy

Multimedia

Audio
TEXT SIZE - +

As Greece embarks on tough economic reforms it is facing the prospect of deep social unrest, with tens of thousands of workers taking to the streets this week. The Greek debt crisis is spilling over to other European economies - and threatening international prospects for economic recovery.

More strikes and social unrest. Tens of thousands of disgruntled workers spilled into Greek streets on Wednesday, registering their discontent with government austerity measures to control Greece's spiraling public deficit and debt. Greece's economic woes have posed the biggest challenge yet for  the decade-old euro currency - and the 16 nations, including Greece, that make up the eurozone economy.

Greece has been a top subject in Brussels, where European Union leaders registered support for Athens and its economic reforms this month - but offered no financial assistance.

The Greek government has promised to slash its public deficit from nearly 13 percent of gross domestic product to nearly nine percent of Gross Domestic Product by the year's end. Greece's debt is currently estimated at more than $404 billion - or about 113 percent of its GDP.

Just how serious is the Greek crisis? Very serious, says economist Paula Subacchi of the Chatham House policy institute in London.

"The crisis is serious and it is serious for many reasons. One is because of the credibility of Greece. And the events of the past couple of days do not really improve confidence in the country and therefore foreign investors are very concerned," she said.

On Thursday, European Economic Commissioner Olli Rehn said he would personally inspect Greek's austerity plans after receiving a report from EU, European bank and IMF auditors who were in Athens this week. Speaking to reporters, Rehn outlined some of the spillover effects of Greece's problems.

"The mood deteriorated in some segments at the start of this year following growing concerns of the fiscal situation in some countries. This led to sharp increases in sovereign bond spreads in the euro area as we have seen recently - especially in the case of Greece," he said.

The European Commission - the EU's executive arm - says it will be monitoring Greece carefully to see it lives up to its promises. Commissioner Rehn says the Greek crisis serves as a lesson for the eurozone as a whole.

Several credit tracking agencies have downrated Greece's credit rating and Standard & Poor's warned it could do so again. That could put Greece in the high risk investment category, making it very difficult for the country to borrow money.

Polls show that despite the social protests, the majority of Greeks support the government's austerity measures. And Subacchi says it is critical Athens sticks to them.

"The Greek government has a huge problem. It needs first of all to regain credibility. And the way to do it is to make sure that the deficit reduction plan is credible. It's not overambitious with the risk of triggering the kind of protest we're seeing - but it's not too mild," said Subacchi.

Analysts fault several factors for Greece's debt crisis. The country overspent and failed to report the true size of its ballooning deficit to the European Union. Critics also say the European Union did not properly scrutinize the figures sent in by Athens.

But Simon Tilford, chief economist at the Center for European Reform in London, says the Greek crisis reflects a larger economic problem in Europe. EU members like the Netherlands and Germany have spent too little and their economies are driven by exports. Meanwhile, southern economies like Greece and Portugal have spent too much and amassed debts as a result.

"So in order to find a lasting solution, we need change on both sides. we need countries that have been hard hit in the south - such as Spain, Greece, Portugal, Italy - to take reforms to boost productivity growth, to cut costs, to manage their public sectors more efficiently," he said.

But Tilford says surplus countries like Germany have to provide more demand for southern European products.

Analysts fear Greece's economic crisis risks spilling over to other southern European countries with shaky economies. It has also raised questions on complex and questionable financial deals between Athens and financial companies like Goldman Sachs. But Tilford says these are symptoms and not the root causes of Greece's dilemma.

Analysts like Tilford and Subacchi believe European governments will ultimately come to Athens's financial rescue - because a Greek crisis may soon become a European one.

"I'm personally very convinced there eventually will be a solution to the Greek problem. Because we cannot think what a default of Greece will trigger. It's a risk nobody wants to take," said Subacchi.

Greece's problems are also spilling beyond Europe's borders. The value of the euro currency has plunged for example, which makes American exports - key to the U.S. economic recovery - less competitive.

Ultimately, Tilford says, the Greek problem reflects a world economic problem.

"The eurozone s really just a microcosm of the global problems we see. So unless we see the big countries in East Asia rebalancing away from exports and toward domestic demand, we are not going to generate a self-sustaining global economic recovery," he said.

But Tilford does not believe Europe is ready, or willing, yet to undertake fundamental economic reforms he thinks are needed to right these imbalances. The region may rescue Greece, he says, but it will only be putting a bandage on a far bigger problem.

You May Like

Multimedia Anti-Keystone XL Protests Continue

Demonstrators are worried about pipeline's effect on climate change, their traditional way of life, health and safety More

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid