There are a few truisms that pop up again and again in my life; Everything takes longer and costs more; Nothing is simple and There are no simple answers to complex problems. All of these seem to be true of the Greek debt crisis. There are a couple of articles in the New York Times today that lay out the scope and complexity of the problem, you can find them here and here.
Unlike the United States the Greek government is actually in a debt crisis. They have probably entered a debt trap, where they don’t have enough money to pay all their normal bills plus the interest on their debt. This means that they have to borrow to cover the interest. Of course when they borrow they have more interest and more debt.
Unlike the United States or other nations who have a sovereign currency they can’t just devalue their currency or lower interest rates. Being part of the EU and the Euro zone these things are controlled by the European Central Bank.
This puts them in a really bad place with few options. Right now the three groups that are loaning them money, the IMF, the European Union and the European Central Bank are demanding cuts or savings totaling $40 billion by 2015. That is a huge amount of the Greek GDP, nearly 12% of GDP. To give you an idea of what that would be in the United States economy it would be like cutting out $1.75 trillion (yeah, 175,000 billion) in the same time period.
To do this the Papandreou government is basically going to have raise taxes, slash wages and employment and sell off a bunch of the state owned assets of the nominally Socialist state. The question that is starting to emerge is, will this actually fix the problem?
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