When a country shares a currency, it needs to force down wages and other costs often by more austere measures. That’s part of Greece’s problem now. Red “for rent” and “for sale” signs are spattered across the walls of even the fanciest neighborhoods of Athens, as businesses have closed, people have moved away and economic prospects have faded.
The government has raised taxes and cut services and is announcing tougher steps every other week. So far it has been to no avail; the economic outlook keeps getting worse, not better. The deterioration has continued even since late July, when the latest European bailout plan was proposed.
Greece sneezed, and now most of Europe has a cold. The European debt crisis has already spread like a virus from Greece to Ireland and Portugal, and other countries are now at risk.
Sept. 29 (Bloomberg) -- Marie Diron, a senior economic adviser at Ernst & Young, discusses the European Financial Stability Facility and the euro-zone debt crisis. She speaks with Andrea Catherwood on Bloomberg Television's "Last Word."
That plan — which governments around the euro area are approving one by one, though many analysts say it now appears inadequate — was backed in a crucial vote Thursday in Germany that bolstered Chancellor Angela Merkel’s standing in response to the crisis.
But winning support for even more drastic measures by the Greek government to fulfill the conditions of the rescue package could be a hard sell.
Neither Greece’s governing socialists nor the conservative opposition has called for dropping the euro, and even hard-hit Athenians who roll their eyes at their politicians aren’t ready to pull out of the currency. A poll this week in the Athens daily Kathimerini newspaper found that two-thirds of Greeks felt that going back to the drachma would be negative for the country; 63 percent had positive views of the euro.
“It would be disastrous, economically, financially, politically, in every single sense, for Greece to leave the euro and return to the drachma,” said George Pagoulatos, an economist at the University of Athens and a former economic adviser to the Greek government. “The purchasing power of Greece would be devastated. There would be a massive deficit in energy, imports, oil, even agricultural goods. Pharmaceuticals. Basic goods that Greece needs to function would come at a heavy price.”
Even Greece’s main export industry — tourism — would suffer, he said, because it depends so heavily on imported equipment.
A UBS analysis this month estimated that a Greek pullout from the euro could cost the country 40 to 50 percent of its annual economic output in the first year, although it acknowledged that assigning such a number is more of an art than a science.
Still, the patience of citizens such as Gogou and Athanassios Georgiou for more austerity measures appears to be wearing thin.
“Greece is like a mouse in a laboratory,” said Georgiou, 28, who is jobless and was protesting the spending cuts this week in front of Parliament. Pulling out of the euro couldn’t make the situation much worse, he said.
“There are many people here who are close to starving as it is.”
Special correspondent Elinda Labropoulou contributed to this report.