Athens raised the curtain for the latest act of its euro drama on Wednesday as the Greek cabinet got a new austerity package through parliament. The adopted measures will give a welcome respite to Greece's government. They are unlikely to relieve the nation of its mounting debt, though.
Greek myth and reality
Greece observers watching the debt crisis unfold do not have to look too far for expressive imagery to suit their emotionally charged comments. Greek mythology abounds in metaphors that could aptly describe the country's current financial turmoil. Augean stables and Pandora's box are just two of the many myths invoked by the European media to dramatize the grim economic realities facing modern-day Greece.
The country's monetary crisis extends beyond its borders, raising doubts over the stability of the single European currency and the euro zone. However, to say that the European Union is on the brink of a collapse is going too far. The EU's structural defects are a secret to no one, not even to its founders. The Greek crisis has just cast a spotlight on those defects.
Who's to blame?
The danger of a euro crisis stems not so much from the fact that the European Union is bound by a single currency and a common market, as from the lack of a common economic policy and fiscal discipline binding member states together. And it is the EU's governing body - the European Commission - that should be held responsible.
Only five of the eleven original euro nations kept their budget deficits under the prescribed limit of 3% of GDP in 1999, the year the single European currency was created (Greece joined the euro zone in 2001 and the currency entered into circulation a year later). After a while, all such restrictions were removed from legislation and only Germany continued to stick to its original commitments.
It will be remembered that the common European market emerged long before its consolidation in the 1992 Maastricht Treaty, and has survived several crises, distinguishing itself as a viable and self-regenerating mechanism. The EU member states have become so interdependent by now that the union's disintegration would be a catastrophe of proportions far greater than the 2008 downturn.
The current economic situation in Greece is far from sunny, but it is not disastrous. The Greeks do not want to opt out of the euro zone. Officials in Athens are well aware that such a move would thrust the national economy a few decades back.
Besides the fact that leaving the euro zone is not an option provided for by EU legislation, even if the Greeks chose to take up their national currency, the drachma, their euro-denominated debt would remain outstanding.
Having said that, a realistic solution to Greece's financial crisis does exist, and more and more economists now wonder why, in efforts to put out the Greek fire, bowls have been used instead of a water canon.
Greece's debt, currently standing at 355 bln euros, should have been rescheduled and partially written off right at the start. The debt/GDP ratio, meanwhile, should have been reduced by half, to 80%. This would have made the country much easier to bail out.
The Greek debt crisis is not something Brussels cannot afford to resolve. The integrated EU economy is the world's largest. According to the International Monetary Fund, the aggregate GDP of all the 27 member states reached $16,228.2 trillion in 2010 (as compared with the United States' $14,657 trillion). Obviously, writing off part of the Greek debt wouldn't leave the EU broke.
In fact, the European Union is already moving in that direction, with France in the lead. Earlier this week, President Nicolas Sarkozy persuaded French banks to roll over holdings of three-year Greek bonds. Now Chancellor Angela Merkel is encouraging German banks to follow suit.
A case of the tail wagging the dog
The risk of Greece's default has left many EU officials wonder just how to stop "the tail from wagging the dog."
The single European currency is still quite strong, though, and many foreigners - notably the Chinese - continue buying euros to diversify their reserves. It would be imprudent, though, to keep one's euro-denominated deposits in Greek banks these days.
Greece does not rank among the leading euro zone nations. Most euro transactions are between Germany, France, Belgium, the Netherlands, Italy and Spain.
Even if the Greeks' euro zone membership is suspended, the EU will have a reliable and well-adjusted regulatory mechanism to rely upon - the European Central Bank. This institution has proved to be a far more trustworthy guarantor of monetary stability than the U.S. Federal Reserve or even the Bank of England.
So the potential impact of Greece's debt crisis on the euro zone may be not as dramatic, after all.
Some of the observers accuse European banks of dragging their feet on the Greek bailout so that government aid goes to them rather than being sent to Greece. But then again, the banking sector has got to be selfish in order to stay afloat, hasn't it?
The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
