A few weeks ago, Greece soundly denied reports in the German media that it was considering leaving the Eurozone and using its former currency, the drachma. Those reports surfaced because of concerns that Greece, a year after receiving a 110 billion euro bailout from the International Monetary Fund and the European Union, is still struggling to repay 340 billion euros of debt. In the weeks since, Moody’s Investors Service lowered Greece’s credit rating by three notches and, says the Wall Street Journal, suggested it might cut the rating further and send Greece’s debt into “junk-grade territory.”
The other members of the Eurozone in general and Germany in particular are increasingly worried that, should Greece have to restructure the debt it seems yet unable to address, the credit ratings of other European nations could also sink. Greece’s banks could see their ratings downgraded too, according to the Wall Street Journal. In the case of a Greek default, Portugal and Ireland — two other countries that also had to be bailed out by the IMF earlier this year — could see also their ratings slip towards junk territory, says Reuters.
Fearing such a scenario, European ministers were speaking last week about a so-called “soft restructuring,” but only in the event that Greece completes a “tough overhaul,” something that is still in the works. As the New York Times reports, Prime Minister Jean-Claude Juncker of Luxembourg, who oversees meetings of Eurozone finance and economic ministers, says that Greece may “not meet requirements to receive the next installment of aid from the International Monetary Fund.” Juncker’s comments are being “interpreted as further pressure on Greece to act more boldly”:
“I’m skeptical about Greece,” Otmar Issing, a former member of the European Central Bank’s executive board, said on Thursday, according to Bloomberg News. “Greece is not just illiquid, it’s insolvent.”
Peter Bofinger, an economist who advises the German government, said on Wednesday in Hamburg that Greece’s creditors would need to accept a 40 percent cut in the value of the country’s bonds, and swap them for bonds issued jointly by euro zone members.
Efforts in Greece are underway to pay off the massive debt. The Guardian reports that Greece’s Prime Minister George Papandreou has finally won the approval of the cabinet for proposals to sell 50 billions of state assets, including telecom company OTE, the Post Savings Bank, the State Lottery Tickets and the ports of Thessaloniki and Piraeus, says Reuters.
(If the last sounds vaguely familiar to you, you may be recalling the opening of Plato’s Republic, which starts with Socrates saying “I went down yesterday to the Piraeus with Glaucon the son of Ariston, that I might offer up my prayers to the goddess; and also because I wanted to see in what manner they would celebrate the festival, which was a new thing.”)
As the Guardian points out, there are some problems with the plan to sell these Greek state assets, such as how Papandreou will sell them. Also to be put up for sale are utilities companies, which are heavily unionized; they were “not sold long ago was because of fierce opposition from organised labour and within the governing socialist party.” It’s also not clear that Papandreou can get the support of his cabinet or of the Socialist party to support higher taxes and spending cuts, other measures needed to reduce the country’s massive debt.
As Papendreou met with his cabinet on Thursday, some 12,000 people demonstrated in Syntagma Square outside the Parliament building in the middle of Athens, says the Greek news website In.gr. In Thessaloniki, Greece’s second-largest city, protesters expressed their frustration with a simple, telling gesture: Upon the medieval-era White Tower — a longtime symbol of a city with a history stretching back to the time of Alexander the Great — a banner was hung that said “For Sale.”
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Photo of the White Tower in Thessaloniki by the author.