Greece's debt causes fear worldwide

Other nations may be affected by EU financial turmoil, including Canada

By Zara Urvashi Ramaniah

Borderless

The recent recession is barely forgotten and the financial troubles in Greece are once again causing global fear.

At the end of 2009 the euro declined in value, largely due to Greece's deficit, and European Union (EU) member states worried that the EU would face more trouble if something wasn't done to assist Greece.

Greece is currently struggling to pay off a debt which is over 100 per cent of its GDP. The fear in Europe and worldwide is that if Greece isn't helped and goes bankrupt, it could mean the end of the EU, and such a breakup would affect economies outside Europe.

The global stock market already dipped alarmingly low on May 7, illustrating just how worried the international community is about Greece's instability, and how it will affect global recovery from the recession.

European banks are trying to prepare themselves against the inevitable: losing shares and further devaluation of the euro. There is also fear that some European governments will be unable to pay their debts. Investors are also hesitant to put their money into Europe in case the crisis in Greece spreads to other EU states.

It has already crept into Spain and Portugal, and there are doubts that the UK, which has been in the middle of a national election for the past few weeks, will be able to steer the country back to financial stability with a divided government.

When Greece asked for a bailout last year, Germany and the European Central Bank (ECB) strongly opposed injecting the country with more money, a plan which had the backing of Spain and France.

On May 2, the International Monetary Fund (IMF) and the EU announced a modified austerity plan which the Greek parliament approved four days later, a plan that was not popular with the Greek public and sparked riots.

This new plan means higher taxes, with a two per cent increase in value added tax, a 10 per cent rise in indirect taxes, and stronger penalties for tax evasion, which is estimated to cost Greece 20 billion Euros a year.

Salary freezes and cuts to pensions and to the public sector have caused the most anger. The sentiment in Greece is that the burden of these measures will be borne by lower income families. This sentiment is not surprising, as the European Commission predicted a three per cent decrease in Greece's economy by the end of the year.

Violent tactics by the police have done little to appease protesters who feel betrayed by their government. Two women and a man were killed on May 5 when a petrol bomb was launched into Marfin Bank in central Athens in an escalation of violence.

While the Greek people protest, the government is moving ahead with the austerity plan. The loans are being spearheaded by Germany who has pledged 22.4 billion Euros, the largest share of the loans. Fifteen European economies are attempting to aid with the bailout, but their governments have yet to approve the loans. If they do get approval, it will be their taxpayers' money which will be used to fund the loans.

The "Piigs" states (Portugal, Italy, Ireland, Spain, as well as Greece) are also having trouble with their debts. If Greece isn't helped, the EU fears a domino effect: interest rates will go up for these countries and they will be unable to pay their bills, let alone their debts. If these states are unable to balance their budgets, the euro will fall even more, affecting not only the EU, but all its trading partners.

The EU accounts for 10 per cent of Canada's external trade and is our second-most important trading partner. Canada signed the Framework Agreement for Commercial and Economic Cooperation with the EU in 1976, and continues to have strong trade relations with the Union.

On May 6, 2009, a Comprehensive Economic and Trade Agreement (CETA) was launched, and the negotiations are set to continue for another 2.5 years before an agreement is reached.

If Greece cannot rise from this slump, CETA will not only fall through, but Canada will suffer drastically if it loses such an important trading partner.

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