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Greece seeks to stop default
Thursday, 22 September 2011 14:46

The Greek authorities have passed a new economy rescue plan providing for tougher austerity measures to receive another tranche from the EU and the International Monetary Fund (IMF). Otherwise, Greece may default on its debt as early as in mid October. 

The Greek economy has long ago become a heavy burden for the entire European Union. That country is obviously living beyond its means seeking to comply with social European standards and the level of developed countries. The EU has been turning a blind eye on Greece’s being in the risk zone for many years, until the global financial crisis hit the world in 2008. Given that it became part of the Euro zone in 2001, the inability of Athens to pay off its loans arouse the question of both its own salvage and the future of Europe’s entire payment system. This issue was highlighted by senior analyst in the Nord Capital consulting company Maxim Zaitsev interviewed by the Voice of Russia.

"The question is how economically viable the model itself is, with such different countries as Greece and Germany using one and the same currency. One of them enjoys high development rates and a relatively low debt and another one has a small stagnating economy. The EU has problems with the crudity of mechanisms of mutual assistance. However, a single currency benefits most countries, making it necessary to hold consultations and exert every effort to support the weakest member states," says Maxim Zaitsev.

This has become not the first rescue plan adopted in Greece. Last year, Athens got €110 billion in exchange for pledges to cut back on its spending. But the debt crisis has not yet been overcome, with expenditures still exceeding revenues. Greece’s senior Euro zone partners in the name of German Finance Minister Wolfgang Schäuble rebuked Athens for its impairment of obligation and failure to curtail budget deficits. Today, Greece plans to decrease pension payments, accelerate privatization and introduce a partial payment of wages and real estate taxes.

All this is happening amid rumors concerning the looming default and Greece’s possible withdrawal from the Euro zone. All in all, the Europeans wonder what is going to be less painful for their country - a debt default or bailout.  If Greece were not part of the Euro zone, a default could have saved its economy, whereas the present-day status quo may provoke a domino effect that will destroy the economies of Spain, Italy and Portugal. No one also bothered to assess political risks in case of Greece’s leaving the Euro zone. Thus, there is only one issue on the agenda - to help Greece out of the debt pit. One of the possible options is a restricted default to avoid major bankruptcies and a paralyzed interbank market. Analysts believe this will make the process more of less controllable. Expert at the Invest Café independent analytical agency Anton Safonov has this to say in this context:

"It would be logical to let Greek default on its debt this year or in the first half of 2012. Excluding all negative factors, the earlier this happens, the earlier the Greek economy will recover. Consequently, there is no sense in further delaying the present-day situation with gradual spending cuts, the growing social tension and so on. It won’t be a great surprise even if the default happens right now because everyone is ready for it," Anton Safonov believes.

No one is saying that the Greeks do not work but their financial irresponsibility is too high. Therefore, we are not only talking the financial crisis but a combination of economic, social and psychological problems.

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