Podcast Center
Video Center
Webcasts
Resource Center
Events
February 04, 2013 at 08:42 PM
Optimism may be surfacing in the Eurozone, and many officials may have backed off their original tough stance on austerity, but Greece is still battling its debt demons. However, it doesn’t look likely to fall off the cliff in the immediate future.
At Davos this past January, doomsayers from Nouriel Roubini to Kenneth Rogoff were reminded of their predictions at the January 2012 meeting of the World Economic Forum, and after, that Greece would surely be gone from the Eurozone by now with the joint currency’s very survival in doubt. Neither a Greek exit nor the chaos that would have ensued has occurred, however.
Instead, a declaration last summer from Mario Draghi, head of the European Central Bank, that he would do “whatever it takes” to keep Greece in the Eurozone was followed in the fall by an ECB bond-buying strategy that seems to have poured oil on troubled market waters—even though it has yet to be used. Interest rates have fallen, while speculators who bought Greek debt in January of last year and held it made out like bandits, reaping what Bank of America Merrill Lynch indexes indicate as a 78% return. German Bunds only returned 4.5% for the same period.
In addition, a relaxation in austerity demands appears to have lessened the likelihood of a Greek departure from the euro, as some of the more prosperous Eurozone countries have acknowledged the need to concede that approach as flawed as they moved toward more joint action to preserve the region’s currency.
That doesn’t mean thatGreece’s problems are over, of course. It still staggers under a mountain of debt—predicted by the European Commission to hit 174% of GDP this year—and a crippling unemployment rate of 26.8%. It has also been battling to enforce tough austerity measures on an unwilling populace—everything from tax increases to job, salary and benefits cuts to crackdowns on tax evaders—with dubious success.
Its efforts to impose conditions required by the European Union in exchange for bailout funds have led to demonstrations, some violent, and strikes that have intermittently shut down the already beleaguered economy in areas ranging from tourism to medical care. Scandals over tax evasion and the so-called “Lagarde List” of 2,000 members of the government, past and present, who secreted cash in Swiss accounts rather than pay taxes on it have further fanned the flames of rebellion, according to published reports.
However, somehowGreecehas muddled through to be approved in December to receive the latest tranche of rescue funding—49 billion euros’ worth ($57 billion) of cash to keep the country going as it strives to right its ship of state. Also approved was a two-year extension of the deadline by whichGreecemust reduce its debt to within International Monetary Fund-prescribed limits, as economists have begun to rethink austerity policies and their effect on a depressed economy such as Greece’s.
