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Evaluating the Current Financial Situation in Greece

It is truly tragic that, in a few short years, Greece has shifted in the public imagination from being the birthplace of democracy and timeless philosophical inquiry to being called a “broke” nation, and being cited as a prime example of the socio-political fractures in the Eurozone. Since the 2010 rise of Greece’s national debt to nearly twice the Eurozone average, and the subsequent degradation of Greece’s government debt to ‘junk bond’ status in 2010, things have not been particularly rosy for the country’s finances, prompting serious skepticism among foreign investors and potential professional migrants to the area.

In the wake of this crisis, talk about Greece’s abandoning the Eurozone eventually became so common that the witty portmanteau “Grexit” [pairing “Greece” and “exit”] was even coined as a shorthand description for this situation (and the mere popularization of the idea prompted many to withdraw their Euro currency from Greek banks). The status of Greece as a continental pariah – just read any of the German Bild Zeitung tabloid’s recent editorials for lurid proof of this – has also not helped since other regions seen as being under Greek influence, specifically Cyprus, are seen as repeating many of the same mistakes. As of late 2012, in the wake of the second EU financial ‘rescue package’, Greece’s GDP growth was at negative 1.8%, while the budget balance was at minus 5.4% of the GDP.Mixed signals on recovery

It is precisely the need to use Greece to make a larger point that makes it difficult to find positive reportage from the area, with many editorials focusing on the ‘domino effect’ presented by the Greek situation, rather than the quality of life currently experienced within the country. However, even Reuters news editor Hugo Dixon’s widely read letter of cautious optimism – “Greece Will Probably Pull Through” – is a study in mixed signals. Though noting “last week [April 15] gave Greece a thumbs-up in its latest progress report”, Dixon’s moments of sunny outlook still come wrapped in the realization that “the economy will have a terrible 2013”. This is a realization itself fueled by the speculation that “the ongoing austerity will cause the economy to shrink by another 5 percent or so this year, taking the cumulative decline to around 25 percent” (unemployment is also expected to “rise to about 30 percent”). Among the signs of life, Dixon’s report also mentions the post-bailout recapitalization of “viable banks” and the closure of “non-viable” ones, although exact numbers and definitions of viability are not provided.

Therefore, it is difficult to gauge how much of the total financial sector will be shuttered, and to determine how this would affect both the national unemployment picture and the rate of recruiting expatriate workers. If we look elsewhere, though, there are some more clear-cut signs of improvement that seem to have fewer disclaimers attached to them, such as the Economist report that “another €9.2 billion slice of aid from the European Union is on the way, while Greece’s business climate index has hit a two-year high”.

The government's role in recovery

The cohesion and functionality of the Greek government is another major stepping stone that must be reached on the way to recovery. As of the June 2012 national elections for the Hellenic Parliament, no single party attained the 151 seats needed for an overall majority, although Prime Minister Antonis Samaras’ New Democracy-led conservative government is showing signs of stability.

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Samaras’ job is not an easy one, as he must fend off disruptions from an opposition comprised by a full spectrum of radical ultra-nationalists and/or anarchists. More worrisome are the radical groups’ street fighting wings – often bearing names that comically overstate their importance and success, e.g. “Conspiracy of Cells of Fire” – that can nonetheless cause a good deal of personal and property damage if totally dismissed. The non-lethal bomb attacks conducted on local banks and ND offices earlier in the year attest to that, and they were poorly timed for a government gearing up to attract new investors and tourists to Greece.

So, any economic rebound for Greece will have to involve the continued marginalization of political elements, at either end of the spectrum, who pin their hopes on a “worse is better” scenario, in which steadily more unbearable living circumstances will lead to a revolution and national regeneration. Some positive signs in this area have already been shown, such as the far-left Syriza party softening its fiery criticism of Greece’s creditors (a move which was probably necessitated by its finally losing in the polls to Samaras’ New Democracy).

Real recovery for Greece will also require both the Greek public and the professional commentariat to not reduce economic success to a single indicator, such as GDP, which does not measure gross national output. The cure for Greece’s ailments will not come about solely on consumption, but on developing more of a local base for production.