[칼럼]Global Economy, Greece’s Crisis
Nowadays the economy is so interconnected that a nation’s crisis can spill over to another country. The recent Greek crisis and the default on its payment obligations had a destabilizing impact, not only on Greece, but also on its neighbor countries and the entire world.
McLean High School
After the Euro was adopted as the common currency in 2002, Greece had a boom due to the access to the Euro. Although they had a low credit score before, with the Euro they were able to borrow money at a much lower interest rate. Borrowing from mostly France and Germany, Greece enlarged its debt to a point where they could not turn back. Greece has a generous pension system where civil servants employed before 1992 can retire on 80% of their final basic salary. While Greece promised to deliver structural reform package - reducing budget deficit by 2014 to 3% through spending cuts and tax increases - agreed with the ECB and the IMF, they failed to execute them as promised, only enlarging the debt. When the creditor’s new proposal for structural reform was voted against in the referendum called by Tsipras, the question remains to what will happen in the imminent future.
The Greek government and people want a significant relief to escape from their vast debt. With other Southern Europe countries which had succeeded in reinvigorating their economy without any debt reliefs, however, the EU is hesitating whether to allow debt relief or have Greece exit the Euro. If the EU allows debt relief to Greece, issues of wrong incentive and moral hazard arise, as Greece has not succeeded in their structural reforms. Not allowing relief will lead to a dangerous situation, not only economically but also politically. Greek imports will stop, and inflation and unemployment will increase, destroying Greek economy. It could also destabilize other Euro countries - member countries could later decide to secede easily, if similar situation happens, leading to a clash of the Euro system. If Russia decides to step in and help Greece out of their recession - once Greece falls out of the EU - the possibility of geopolitical instability in the Mediterranean region cannot be ruled out. Therefore there is a dilemma of whether to take a principled, rule-based approach or a pragmatic approach to stem a short-term difficulty. In such a dilemma, Greece and the EU member states are currently trying to negotiate the situation for the best of all.
Such complexity exemplifies how interconnected the world is. The economic recession of Greece is not a problem solely of Greece but that of the whole EU. In order for Greece to step out from its crisis, Greece should proceed with a reformation that satisfies the EU member states including spending and taxes. Based on such Greek efforts, the ECB and creditors should possibly consider a debt relief to put the Greek debt on a sustainable level. Negotiating on such rescue program for Greece will be the main issue for the next few days.