Greece: From eurozone villain to victim
Demonized for two years as the villain in the eurozone piece, Greece is being increasingly portrayed as the victim about to pay a heavy price for the bloc's debt crisis.business Updated: Nov 06, 2011 09:56 IST
Demonized for two years as the villain in the eurozone piece, Greece is being increasingly portrayed as the victim about to pay a heavy price for the bloc's debt crisis.
Greek Prime Minister George Papandreou did not help his case by threatening a referendum on a new debt rescue deal, infuriating eurozone leaders who had laboured for weeks to agree a new Greek rescue package.
After insisting repeatedly that Greece would never leave the 17-nation monetary union, top officials openly suggested that Athens should choose between leaving or staying in the eurozone.
Papandreou was even summoned by French President Nicolas Sarkozy and German Chancellor Angela Merkel, leaders of Europe's top economies, to explain his actions on the eve of the G20 summit in Cannes, France.
"The Greeks have to decide whether to continue the adventure with us or not," Sarkozy said after the meeting.
"We hope to continue with the Greeks, but there are rules that have to be respected."
The French leader recently said that admitting Greece into the eurozone in 2001 was a mistake.
The debt crisis erupted in late 2009 when Papandreou's freshly-elected Socialist government revealed Athens had cooked its books for years, concealing a public deficit far in excess of the eurozone's legal limit.
Often lambasted for widespread tax fraud, a bloated public sector and an anaemic economy, Greece also has earned a reputation for living on credit for years, causing its public debt to mushroom to 160% of Gross Domestic Product -- way over the EU limit of 60%.
In July, 19 Greek economists warned that the country needed to implement reforms to emerge from the "quagmire of a dysfunctional economy" and eradicate "rampant corruption."
With the Greek crisis threatening to contaminate Italy, after having sunk Portugal and Ireland, Merkel has called on profligate nations to cut spending as she called for the problem to be attacked at its roots.
But some politicians and economists say the Greeks have sacrificed a lot, with austerity measures that slashed salaries and pensions, increased utility bills and raised taxes while tens of thousands of public workers were put on temporary furlough.
Greece was forced to launch a package of budget cuts and tax increases in return for an EU-IMF bailout worth 110 billion euros in May 2010 -- and the delivery of more aid depends on the implementation of more measures.
In recession since late 2008, the country is struggling to rediscover growth, with the International Monetary Fund seeing a recovery in a distant 2013.
"There is a need for EU governments to rectify the clear flaws of the first phase of the Greek bailout and the destructive downward cycle of austerity," the heads of the Green group in the European parliament, Rebecca Harms and Daniel Cohn-Bendit, said in a statement.
Simon Tilford, chief economist at the Centre for European Reform in London, said the austerity imposed on Greece has been excessive.
"The eurozone bears a very large chunk of responsibility for Greece's current situation," Tilford said.
Some economists have suggested that the best answer for Greece may be to leave the eurozone, at least temporarily, so that it can devalue its currency in order to make the economy competitive once again and grow, allowing it to then tackle its debt mountain.
Back in May, Mark Weisbrot, co-director of the Center for Economic and Policy Research in London, warned against a deal preventing Greece from returning to growth.
"From a creditors' point of view, which the European Union authorities have apparently adopted, a country that has accumulated too much debt must be punished, so as not to encourage 'bad behavior,'" he wrote in the New York Times.
"But punishing an entire country for the past mistakes of some of its leaders, while morally satisfying to some, is hardly the basis for sound policy."