STAFF NEWS & ANALYSIS
EU Probes Greece
By Staff News & Analysis - January 05, 2010

Greece is bracing itself for the most intrusive surveillance of any eurozone state since the launch of the single currency, amid reports that the country's budget deficit is spiralling further out of control. Officials from the European Commission and the European Central Bank are on standby for a "monitoring visit" to Athens as soon as they receive word from Greek authorities outlining how they intend to get a grip on public debt. The Greek financial website Ta Nea (http://www.tanea.gr/rendered.htm) reported that last year's deficit may have reached 14.5% of GDP as a result of plunging tax revenues in the late Autumn, even higher than the 12.7% "shocker" revealed by the new Hellenic Socialist (PASOK) government in November. – UK Telegraph

Dominant Social Theme: Another one bites the dust?

Free-Market Analysis: First Dubai – now Greece? Sovereign states were not considered bankruptcy material in previous decades, but now it seems such bankruptcies are perfectly feasible to fathom. No one thought Dubai would default – that's what happened didn't it, at least for a little while – and no one can countenance a Greek default either. But we have a theory about Greece: That country couldn't save itself if Aphrodite was given the chance to run it. Here's some more about Greece's plight:

The political picture is muddied by ideological disputes within the ruling party. Much of PASOK's old guard thinks the crisis is largely bogus, whipped up by right-wing forces at home and abroad to prevent them from pursuing a Left-wing spending agenda. Some seem determined to provoke Brussels into reacting harshly so that they can more easily deflect blame for cuts onto the EU.

Greece has been under "monthly monitoring" since mid-2009 by the Eurogroup of EU finance ministers, a task delegated to Commission officials. They are effectively policing details of the Greek budget, a policy that takes the Europe into hazardous terrain. It is unclear whether any nation will tolerate such an erosion of fiscal sovereignty for long, though everybody is on best behaviour for the time being.

"There is close cooperation with the European Commission to avoid any danger of rejecting our stability programme, something which would be catastrophic," said Greek government spokesman George Petalotis. Athens is already facing "correction" under the EU's Article 126 (8). If it fails to assuage the Eurogroup by mid-February, it will face Article 126 (9) and the threat of sanctions: a suspension of (EIB) loans, and ultimately fines. Chris Pryce from Fitch said Greece is at risk of further downgrades if the deficit is raised again. "Any further revisions will not be welcome. A figure of 14.5% would certainly give us cause to think," he said.

Greece has no easy way out. As an EMU member it cannot devalue to regain competitiveness lost during its boom, even though foreign tourists are defecting to cheaper Turkey. A deflation policy may be self-defeating if it causes the real burden of public debt to rise further. The nightmare scenario will occur if the ECB starts raising rates just as Greece slides deeper into slump. Danske Bank said Greece still has time to avoid default, but only if it takes drastic action to prevent debt rocketing above 200% of GDP within a decade. "The current situation is close to becoming unsustainable," it said.

We admit we are not entirely saddened to see this day come. Let the EU impose "austerity" on Greeks. The campuses shall blaze like beacons unto the night. Athena shall rise up from Olympus with her owl and spear. Zeus shall cast his thunderbolts. Poseidon will make the waves quake. O, it will be ugly.

After Thoughts

The last thing the EU wants right now is riots in Greece and EU forces on the ground trying to restore order. It's not just Greece you see. The entire group of funny Eastern European countries along with Spain (40% unemployment and rising) and some others are in terrible shape. Where Greece is heading many may be following. If the EU handles this wrong, half of Europe could be set ablaze at some point. These countries were dragooned into the EU on the promise of economic plenty. If the EU is seen as an enforcer of something else, we wonder how long the union will last. We haven't been able to identify, at this point, any great commonality among European states beyond the apparent willingness of the political classes to be bribed. The problem will be keeping them that way.

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