What does the slim victory of Greece’s pro-bailout party mean for the country that has been at the center of the European debt crisis? While Greece has certainly already begun the process of restructuring with strict austerity policies that cut government spending and increase taxes, the newly appointed Prime Minister Antonis Samaras believes more cuts are needed. In fact, his first act was to cut the salaries of his cabinet members by 30%. He’s also asked to renegotiate the terms of Greece’s bailout loans. Lower monthly payments might give economic reforms such as more liberal employment practices time to generate necessary growth. As Charles Goodhart, emeritus banking and finance professor at the London School of Economics, noted at a recent European University Institute (EUI) workshop, “Austerity without growth is a recipe for depression, despair and growing social and political dissonance.”
And while the media focuses on the staggering debts and bailouts in Greece where this year’s GDP may drop by 8%, and unemployment now tops 20%, it’s important to understand the human toll. Aristides Hatzis, a professor at the University of Athens, wrote in the Financial Times, “Almost every day extremist violence breaks out in Athens and beyond. Greek people are disillusioned, miserable, exasperated and very frightened.”
It’s crucial, too, to acknowledge that other European countries, including Spain and Italy are also in serious trouble. In fact, Spain recently requested a loan to help clean up its troubled banking sector. While Eurozone finance ministers must find short-term solutions to bailout Spain’s banks and renegotiate Greece’s two rescue packages, they must also work to develop a long-term plan to integrate the European Union’s finances and banking regulations to prevent future crises.