Europe's Debt Crisis Five Threats to the Common Currency
Greece: The Euro Zone's Problem Child
Heavily indebted Greece is Europe's biggest problem. The country's debt is already well over 100 percent of GDP and is still rising. According to euro zone rules, total government debt should not exceed 60 percent of GDP. The country's budget deficit in 2009 was almost 13 percent of GDP, more than four times the 3 percent limit allowed in the euro zone.
Greece's main problem is that the huge debts must soon be refinanced. The rating agency Moody's calculates that the government will have to take on approximately 40 billion in new debt in the first half of 2010, just to service existing debt obligations and to finance new spending. The government itself states that it will need to refinance around 10 percent of its public debt in 2010, mostly in April and May.
Debt ratio: 112.6 percent of GDP
Budget deficit: 12.7 percent of GDP (2009)
GDP growth: -1.1 percent (2009 estimate)
Share of euro zone's GDP: 2.6 percent (2008)
Source: European Commission
The Greek government has now submitted its recovery plan to the EU, but they seem overly optimistic. According to the plan, the government intends to get its budget deficit under the 3 percent limit by 2012 -- a reduction of almost 10 percentage points within just three years. Out of the members of the Organization for Economic Cooperation and Development (OECD) in the period since the early 1990s, only Sweden has managed to accomplish a similar feat -- and it was helped along by the New Economy boom, which gave the global economy a helpful boost. Now, in contrast, the global economy is looking at a long period of stagnation, in the opinion of many economists.
The Greek government has now announced a program of far-ranging austerity measures in a bid to get its finances in order. It includes several measures affecting public sector workers, such as wage cuts, a hiring freeze and the cutting of supplemental wage allowances, as well as measures to fight tax evasion. But the austerity program does not explain how the public sector can be modernized and how corruption can be fought. Hence a large degree of uncertainty still reigns on the capital markets.
The Greek plan was also not enough to placate the EU. Speaking Tuesday, the EU's monetary affairs commissioner, Joaquin Almunia, said Thursday's summit should make it clear to Greece that any help would be in return for clear commitments. "You can't get support for free," he said. Greece can expect any bailout from other euro zone members to come with strict conditions.