Greece deal uncertain as violence erupts

Photograph by Daniel Reese

ATHENS, Greece – Greece’s future in the euro is growing increasingly precarious as violence erupts on the streets of Athens during a general strike.

Thousands of people marched through the streets to protest the cuts, which include a 22% drop in the minimum wage at time when the unemployment rate is over 20% and the economy is in a fifth year of recession.

If Greece’s government fails to meet Europe’s demands, the debt-ridden country faces a chaotic debt default next month that would send shockwaves around the world.

Toward a new Worldwide Economic Crisis

- The worsening economic crisis in Greece: Only a prelude to global social disruption and economic times to come

For years, the successive governments of Greece like many others governments of the world today, have been spending money they didn’t have. As a result, the country ran up a massive deficit, reaching an estimated 13.6% by 2010.

To deal with it, Greece started to misreport its official financial statistics and actually paid hundreds of millions of dollars to banks such as Goldman Sachs to have them initiate baseless financial transactions that would hide Greece’s true level of spending and debt. All of this made Greece extremely vulnerable to a financial crisis such as the major recession that struck the world in 2007.

By 2009, Greece was collapsing under its crushing debts, by then estimated to be over $410 billion, thus growing 20% larger than the entire country economy.

The banks Greece had borrowed from were only making the problem worse: To hide the fact that Greece could soon go bankrupt, they started to charge Greece higher rates of interests when the country tried to borrow more money.

As a result, by 2010, revealing the true levels of spending and deficit that had accumulated over the years, Greece was forced to ask for outside assistance and was downgraded to the lowest credit rating in the euro zone.

With investors now viewing the country as a financial black hole, it made it difficult for the Greek government to receive outside help. Accordingly, the European Union allowed Greece to borrow from other European countries as well as the International Monetary Fund, in what became the largest bailout package in recent history. In return, Greece was forced to drastically cut back its spending.

Government corruption, large increases in taxes, and cuts to public social programs resulted in widespread civil unrest during the year 2011.

In March 2012, Greece will begin to default forcing a further restructuring in which the government will only able to pay back around half of what is owed. This will result in the country essentially being removed from the euro zone and Europe as a whole will be economically battered, along with every other countries which are now trading with Greece. The value of the euro will fall stressing the economies of the European Union with Spain, Italy and Portugal suffering the most.

Final result: the ongoing decline in value of the European currency will negatively affect stock markets around the world for years to come.