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"The time has come to take brave decisions here in Greece just as other countries in Europe have also taken. We all have a debt and duty towards our homeland to work together at this difficult time to protect our economy."
- George Papandreou in a televised address to the nation, 2010
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The lights peered harshly on the stage as George Papandreou, Prime Minister of Greece, addressed the audience in a clear and unwavering voice, “The problem we have is home-made. We Greeks are responsible for putting our own house in order.” The chief protagonist in a Greek drama that has been unfolding over the last several months, Papandreou has been at the helm of an economy fast sinking in the quicksand of debt, expected to reach 120% of its GDP in 2010.
The son and grandson of former Greek Prime Ministers, Papandreou is a scion of one of the country’s top political dynasties. Elected in October 2009, he inherited an economy facing its first contraction since 1993, ending a good run of 4% growth per annum. But Greece was one of the worst-hit victims of the global financial crisis, with the shipping and tourism industries, the backbone of the country’s economy, bearing the brunt of the blow. In 2009, the country’s downward spiral gathered momentum, prompting Papandreou to declare that Greece was “in a state of emergency.”
The 57-year old Papandreou set to work immediately after his election and announced a stimulus package worth $4.4 billion. But within days, Papandreou realized that Greece was too firmly entrenched in debt for the stimulus package to be effective. As Papandreou soon discovered, Greece’s ledgers had long been manipulated. Over the past 10 years, the Greek government had spent staggering amounts of money, leading to a boom in the economy and public sector salaries. But government revenues did not keep pace because of widespread evasion of income tax and the economic downturn, which restrained value-added tax collections as consumer spending slowed. Even as the fiscal deficit widened, Greece hid its actual debt from investors and its Euro counterparts by not including some of its borrowings in the official accounts.
The country is now burdened by an estimated $400 billion in debt. Standing at 12.7% of the GDP, the country’s budget deficit is four times the level allowed in the Euro-zone. But Papandreou has vowed to pare this down to a relatively modest 9.1%. The drama heightened as Fitch downgraded the country’s debt rating to BBB+, the lowest in the Euro-zone.
What is more alarming is that Greece is potentially dragging the Euro into its financial quagmire. The Euro fell to $1.35 in February 2010 from $1.50 in December 2009, its lowest level in 10 months. Greece now faces a tough test. The country has to pay up to $27 billion of its debt before May 2010 or face the prospect of abandoning the Euro altogether, a distinct possibility.
Recently, European Union heavyweights such as France and Germany reached a decision to lend Greece a hand, offering a package of loan guarantees. But news of a bailout sent stock markets tumbling along with the public’s temperaments. Anger levels rose in the Euro-zone at the prospect of taking on the burden of what was termed Greece’s lack of responsibility and recklessness.
Papandreou responded to the criticism with self-control and decisiveness. Acting speedily, he chalked out an ‘austerity plan,’ which includes a fuel tax increase and public sector wage cuts. Through this three-year plan, Papandreou envisions trimming Greece’s budget deficit to 2.8% by 2012, an initiative that recently received approval from the European Commission.
But the people of Greece oppose the proposal. The nation has been racked by riots and protests in the past few weeks, as people poured out en masse, even in heavy rains, to show their disapproval of the stringent fiscal measures. Holding steadfast, Papandreou has insisted that the government will go ahead with the austerity plan to step up taxes and rework pension structures.
Surprisingly, Papandreou’s popularity level has soared despite the unrest. In various opinion polls, Papandreou, who is more subdued than his flamboyant forerunners, has received high approval ratings. Perhaps, it is because he is different. Papandreou’s transparent and open political strategies are fresh changes from the corrupt and scandal-ridden government that the people have long endured. This new Prime Minister, seen as a thoughtful and diplomatic politician, has termed the previous administration as “reckless and corrupt.” According to Papandreou, Greece had a “credibility deficit,” apart from its financial worries, and he promises now to post every government document online. Commenting to The GlobalPost, he emphasized, “It’s imperative that we break away from the past and old mentalities.”
This London School of Economics and Harvard University graduate has been credited with easing the divisive tensions on the island of Cyprus, and he has played a noteworthy role in helping Greece snag the bid to host the 2004 Olympic Games. Now, Papandreou faces what The Guardian terms his “epic battle.” But Papandreou, who is the winner of numerous awards for his work in human rights, is unshaken. The collective faith placed in Papandreou is well summed up by John Panaretos who heads the government’s transparency initiative, “He means what he says.” With Papandreou writing the script, it may very well be that, this Greek drama will not end up being a tragedy.
Image Credit: PASOK on Flickr under a Creative Commons license
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