Crisis in Greece: is this the end of the euro?

As Greece’s economy continues to plummet, professors voice their opinions on what the future holds

Tamara Khandaker
Staff Writer

Greek citizens come together to protest austerity measures that may be implemented in the near future. - Piazzadelpopolo, flickr//cc

Victoria Boucovala was a successful lawyer in Volos, Greece for 17 years until her practice came crumbling down along with the country’s economy. When her clientele of companies and individuals couldn’t pay their fees, along with other local lawyers, her bar association decided to go on strike. Unable to go back to work without the permission of the bar association, Boucovala was left without an income. Like many of her friends who moved out of the country recently to find work in their profession, Boucovala left Greece and moved to Canada.

“My clients didn’t have money to pay, so I had difficulty earning [money],” says Boucovala of her career in Greece. “[Clients] started owing money and they didn’t even follow up the trials that we had already filed as action.”

Boucovala is among the millions of people who have already been affected by the recent debt crisis in Europe.

Since the resignation of Prime Minister George Papandreou on November 9, 2011, life in Greece has become uncertain. With many now having to depend on  Lucas Papademos, an unelected former banker who now leads Greece as the new Prime Minister, many are still questioning whether he can revive the country out of debt.

Chris Williamson, chief economist at Markit, says that Greece may be in trouble with a Prime Minister that the country did not elect. “I can’t see the unions and the population willing to support an unelected technical government that is demanded by the European Union and, even more so, Germany,” says Williamson. “The markets prefer a technical government but if that technical government doesn’t have the population behind it, it’s difficult to see how this will be resolved.”

What began after years of careless spending and mismanagement starting in 2008, Greece’s financial problems reached an emergency state last May, when it was forced to accept $150 billion from the International Monetary Fund and other Eurozone members in exchange for agreeing to implement a number of austerity measures.

The Greek public vehemently opposed the measures with strikes and protests, and even with the bailout, the country’s economy continued on its downward spiral.

As the recession got worse, another bailout package was negotiated; this involved cash and a 50-per-cent “haircut” to its privately-held debt if Greece could cut its spending and increase taxes even further.

Papandreou’s decision to actually consider the proposal resulted in media frenzy. German Chancellor Angela Merkel, and French Prime Minster Nicholas Sarkozy summoned the Greek leader to the G20 in Cannes, and told him that the money would be suspended until the referendum vote was held. Under immense pressure, a defeated Papandreou backed off, calling off the referendum.

Since then, Papademos has won a vote of confidence from his government which gives him the authority to rule, and his main priority is to ratify the $130-billion package which was agreed on at the EU summit in October.

However, just like Papandreou, he has decided to accept the package and its austerity measures which are extremely unpopular among the Greek people.

“All of these last years, we knew that it didn’t matter which party would be in power because the directives came from the European Union,” says Boucovala on the appointment of Papademos.

She says that the fact that there are no provisions for any country to abandon the euro as standard currency puts Greece in a position where it has, in effect, signed off its sovereignty to the European Union.

“The key issue is: should the Eurozone exist or not?” says John Smithin, professor of economics at the Schulich School of Business.

For Smithin, he strongly believes that Greece should leave.

“You would need Greece to go out of the Eurozone, float its own currency and not pursue austerity,” he says.

The austerity measures are disastrous to an already weak economy, according to Smithin.

“They just slow the economy down and you can’t do that,” he says. “It’s absolutely suicidal to have a bad economy and to keep cutting and cutting and cutting.”

But there are those who firmly believe that a departure from the Eurozone would create bigger problems that Greece may not be able to fix. York economics professor George J. Georgopoulos, explains that if Greece is to leave the Eurozone, all of the country’s real debt would soar as it would still be in euros, and not their own currency. He also adds that at this point, it is unclear what the conversion rate would be.

“That is even assuming that there is no bank run,” says Georgopoulos. A bank run is when bank customers withdraw their deposits in fear that their bank will become insolvent.

Georgopoulos also provides a contrasting view on austerity measures in Greece. “I think it’s short-term pain and long-term gain,” he says. “They needed to cut back on their spending because their government sector was too big.”

While almost all EU leaders agree that immediate action must be taken to contain the crisis, what it really comes down to is Germany, where the idea of bailing out Greece is unpopular among the public and thus, politically volatile.

However, Merkel is holding strong to a plan that imposes a new tax on every financial transaction that banks make, with revenue being used to help debt-ridden countries.

“These different [ways being suggested] to [fix the problem] are all variations on making Germany the federal government, and centralizing the power in Germany but I don’t think that will fly,” says Smithin.

“It is like giving up the sovereign rights of our government—it’s too harsh,” says Boucovala of Germany’s heavy involvement in the crisis. “It begins with the appointment of [Papademos].”

She fears now that it may be too late. “We could have had the inflation, and gotten over the crisis. Now, the EU says that there are no provisions for any country to get out of the euro—only to get in.”

As the euro debt crisis continues to spread, as frightened bond investors become more and more cautious, and as the pressure mounts on leaders to take more drastic measures to save the 17 countries that use the currency, Greece can only hope.

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