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Sacrifice and suffocation for Greece

The austeiry measures being taken by Athens threaten to push the economy into a deflationary spiral that could, in the end, make it even more difficult to pay off the country's debts.

Last modified: 3 May 2010 20:09
Photo by AFP

The Greek headlines make sorry reading this morning, as the grim reality of a new age of austerity sinks in.

There's little sense that the country has won a respite through the enormous bailout agreed by European governments, only a grim assessment of what impact the latest round of cuts will have on ordinary Greeks.

"The Big Sacrifice" says Ta Nea, the Elethrotypia believes it's going to be "Four Years Without A Breath”, whilst Ethnos says the pain will last a little longer: "Suffocation For the Next Five Years."

For the Socialist PASOK government, this is galling. Elected only seven months ago, on a promise to increase salaries for many workers, it is now forced to preside over brutal cutbacks.

George Papaconstantinou, the finance minister, says the Greek economy will contract by some four per cent this year.

When the United States and Britain slid into recession in 2008-09, their governments spent money to stimulate their economies back into growth.

Greece is being forced to follow the opposite path. The danger of this is that the economy will go into a deflationary spiral that could, in the end, make it even more difficult to pay off debts.

Take a look at this article in the New York Times.

If that isn't depressing enough, try this analysis in the Financial Times, which argues that even if the massive bailout has won Greece some time, it will still have to restructure its debt in the long run (and as the article points out, restructuring is merely a euphemism for a negotiated default).

The Greek debt crisis has raised some very awkward questions about the long-term viability of the euro.

Can it function across such a range of different countries and economies, with different fiscal policies?

Angela Merkel, the German chancellor, now says publicly what many of her compatriots thought at the time, that Greece should never have been allowed into the single currency to begin with.

Other countries that have since joined the EU, and are still waiting to adopt the euro, like Bulgaria, Hungary and Romania, might as well forget about their applications for the foreseeable future.

Germany is once bitten, twice shy. But Merkel's own leadership has come under critical scrutiny; she's accused of dithering, and failing to explain to her own people why it's not in their interests to see Greece default.

In fact, if European leaders had acted more decisively, it's possible that they would not have had to stump up so much cash this weekend.

Meanwhile, on the streets of Athens, the protests continue.