The EU has announced that they will support Greece’s steps towards economic recovery. The debt crisis in Greece has had a huge effect on the value of the Euro on the international money markets, and the action taken hopes to prevent further depreciations and rescue the Greek economy from total collapse.
Hurman Van Rompuy, the new EU President, announced that Greece would not be allowed to fail in its aims of restoring its economy. The Euro is on the verge of reaching a nine year low against the US Dollar, so European finance ministers from other member states have been keen to pressurise Greece to adhere to a drastic plan of austerity proposed.
The European support is being provided on the proviso that Greece will meet strict economic targets. Angela Merkel, the German Chancellor, stated Greece “will not be left on its own, but there are rules and these rules must be adhered to.”
The current economic figures for Greece are astounding. National debt levels are 108% of GDP. The UK’s figure in contrast is 68.5%. The Greek budget deficit was allowed to reach 12.7%, four times higher than EU rules. One section of the austerity plan is to slash this deficit to just 3% in 2012, a target which has been freshly criticised in the last few days.
The Greek population are unhappy at the prospect of a freeze on public sector pay and huge hikes in taxes on fuel, tobacco, alcohol and property. The upper tax rate of 40% will also be lowered to start at those earning over €60,000. Many workers have taken to the streets in protest. The Greek Prime Minister, George Papandreou has already made a passionate televised plea of support from the Greek people, but he is disappointed at the way the EU has reacted to the crisis. He stated in the televised address that Greece had become “a guinea pig in a battle between Europe and the international markets”.
This crisis has put pressure on relations between the key EU member states. French President Nicolas Sarkozy played a key role in negotiations, partly masterminding the rescue package. There was a debate over pledging immediate financial aid, with the prospect of the International Monetary Fund (IMF) bailing out Greece. Sarkozy and Merkel were understood to be against Washington coming to the rescue of an EU state, especially with the Euro’s reputation at stake. The United States and the money markets have looked at Germany to take the lead the decision-making process.
EU rules do not allow a full bailout of a member state, but efforts are being made to be as supportive as possible. Possible financial aid will have to be predominantly provided by Germany, the largest economy in the Euro zone, something which has been met with harsh criticism from the German people.
The prospect of Greece defaulting on its debts prompted the EU negotiations. With Portugal and Spain in a very similar situation, there was the alarm that the markets would drastically lose confidence in the Euro zone and reduce valuable investment. Fortunately, the euro has stabled in recent days in light of developments. The economic recovery of the other EU member states will be heavily affected by Greece’s own recovery.