News / Europe

Greek Debt Crisis Affects Europe, World Economy



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

Video Americans, Tourists, Reflect on Meaning of Thanksgiving

VOA garnered opinions from several people soon after November 13 Paris attacks, which colored many of their thoughts

Video Thais Send Security Concerns Down the River

In northern Thailand, the annual tradition of constructing floating baskets to carry away the year’s bad spirits highlights the Loy Krathong festival

Video Tree Houses - A Branch of American Dream

Workshops aimed at teaching people how to build tree houses have become widely popular in America in recent years

This forum has been closed.
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.
Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continuesi
Ayesha Tanzeem
November 25, 2015 10:46 PM
One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Belgium-Germany Border Remains Porous, Even As Manhunt For Paris Attacker Continues

One of the suspected gunmen in the Nov. 13 Paris attacks, Salah Abdeslam, evaded law enforcement, made his way to Belgium, and is now believed to have fled to Germany. VOA correspondent Ayesha Tanzeem makes the journey across the border from Belgium into Germany to see how porous the borders really are.

Video Islamic State Unfazed by Losses in Iraq, Syria

Progress in the U.S.-led effort to beat Islamic State on its home turf in Iraq and Syria has led some to speculate the terror group may be growing desperate. But counterterror officials say that is not the case, and warn the recent spate of terror attacks is merely part of the group’s evolution. VOA National Security correspondent Jeff Seldin has more.

Video Taiwan Looks for Role in South China Sea Dispute

The Taiwanese government is one of several that claims territory in the hotly contested South China Sea, but Taipei has long been sidelined in the dispute, overshadowed by China. Now, as the Philippines challenges Beijing’s claims in an international court at The Hague, Taipei is looking to publicly assert its claims. VOA’s Bill Ide has more from Beijing.

Video Syrian Refugees in US Express Concern for Those Left Behind

Syrian immigrants in the United States are concerned about the negative tide of public opinion and the politicians who want to block a U.S. plan to accept 10,000 Syrian refugees. Zlatica Hoke reports many Americans are fighting to dispel suspicions linking refugees to terrorists.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs