Financial leaders from the European Union (EU) are meeting in Brussels in the hopes of saving the continent from the worst economic crisis since the creation of the EU. With Greece’s debt estimated at more than 250 billion euros, tensions mount as the population revolts against the government’s severe austerity measures.
Three Lehigh faculty members, one of whom recently witnessed the events in Greece, offer their thoughts:
Gary Sasso, dean of Lehigh’s College of Education, relates his first-person account from Athens on a day he spent at a reception of the Near East South Asia (NES) International Schools Conference.
J. Richard Aronson, director of the Martindale Center for the Study of Private Enterprise, visited Greece with students, meeting politicians, executives and scholars to learn about the country’s crisis firsthand. Learn more about the Martindale Greece experience.
Paul Brockman, the Joseph R. Perella and Amy M. Perella Chair in the Department of Finance.
Sasso: “On Oct. 20 I visited the demonstration in the early afternoon and spoke to a few of the protesters gathered there. We discussed their issues in relation to the Occupy Wall Street demonstrations occurring in the States and found that the major issues are very similar....that is, they feel strongly that the politicians, in collaboration with the wealthy and major corporate interests, have created an economic climate that has decimated the middle class and poor while corporations and the wealthy have profited greatly.
“There is a feeling among the protesters that the wealthy control the media message and the only thing they can do is to try to make their voices heard. They told me that families here are being forced to try to live on 800 euros a month, an impossible task, while the government imposes greater austerity measures.
“The protest was peaceful until late afternoon/early evening when a group of what are called in Athens the “Anarchy Group” engaged the union-backed protesters in a bit of violence. The police came in, over 100 on motorcycles, others in riot gear. At that point I left and went back to the hotel.
“Later that evening, just outside the hotel, a number of fires were set, a couple of small explosives were detonated and the police responded with tear gas and what sounded like at least three gunshots. The [NES] reception was held in a panoramic room overlooking the Acropolis. We could see the fires, hear the blasts and gunshots, and some of our guests left the reception because they were affected by the tear gas coming up from the streets. We stood and watched as the police chased and arrested some of the demonstrators.
“As I left early in the morning, it was all very quiet......but people remain wary.”
Aronson: “Since the $146 billion Euro loan given in 2010, the country has failed to recover. Unemployment stands at nearly 16 percent, and labor strikes and other uprisings threaten to derail any short-term progress.
“Quite simply, Greece has borrowed too much money. Plus, they have a very generous public pension plan. A lot of the national treasure, as well as Greek businesses, are community owned so the prescription of belt tightening and austerity is certainly understandable. Creditors have a right to get their money back, plus their interest. But austerity also brings a reduction in business activity making it tougher to meet those established goals.
“I am confident that the European Union will see that the right thing is done. I believe the EU was one of the greatest ideas of all time, but a union of that size needs a more involved central government than they have. Our country has similar issues and yet, we soldier on. Mississippi is still the poorest state in our nation, has been for some time, but that does not mean you can’t still visit Mississippi.
“It is of course reaching to make comparisons between Greece and the United States. The U.S. is the most powerful and dynamic economy in the world and has managed it so. We are all in doubt now, of course, because we have a lot of debt and a large deficit. But we are much better off than Greece.”
Brockman: "Most economists will be most concerned about possible contagion effects when talking about Greece and the EU. If the Greek government defaults on its loans, this could create a ripple effect through the financial system. The end result of such a ripple effect is very difficult to forecast.
"The Greek banking system is another important issue. Greek banks are unable to borrow from other European banks because of credit-quality concerns. While these European banks try to limit their Greek exposure by not extending further credits, they still carry substantial Greek sovereign debt on their balance sheets. Until the Greek government defaults on their loans, exposed banks and other lenders will probably not record losses on their financial statements. The efforts of the European Central Bank, IMF, and EU can therefore be seen as an attempt to drag out any eventual default as long as possible. During the delay, European banks will have an opportunity to raise additional equity to levels that can more easily absorb any losses from default. As with all delay tactics, timing will play an important role in the eventual outcome."
Story by Jordan Reese
Posted on Friday, October 28, 2011