May 10, 2011
What is the euro zone planning to do about Greece? A host of theories, denials and accusations have dominated the headlines this week, but no clear path has yet emerged. German commentators say that Athens needs more than aid -- it needs massive European investment.
Amid the recent hysteria surrounding the finances of Greece, some promising news has gotten lost in the shuffle. The draconian austerity package pushed through by Athens last year has been remarkably effective in cutting the budget deficit -- slashing it from 15.4 percent of gross domestic product to 10.5 percent. Were Germany forced to make a similar reduction, it would require €125 billion in savings.
Furthermore, Athens has reformed its tax law, increased efforts to pursue and bring tax evaders to justice and radically slimmed down its public sector.
That, though, is only part of the story. Drastic spending cuts tend not to be good for the economy, and in the case of Greece, the economy has shrunk far more than experts had projected -- by 4.5 percent in 2010. This year, it is expected to contract by more than the 3 percent originally predicted. The country's debt burden now stands at 142 percent of GDP -- and climbing.
European officials now fear that Greece will need additional help in the near future, to make up for a financial shortfall calculated to be close to €30 billion in coming years. In late June, the European Union and the International Monetary Fund, which put together the €110 bailout package for Greece last year, will examine Athens' progress. "Then we will evaluate those results," Martin Kotthaus, a spokesperson for German Finance Minister Wolfgang Schäuble, told the Associated Press on Monday.
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