Greek debt crisis

Greece is the sick man of Europe. Or rather the sickest for there are other sick men too. It's ridden with a debt affliction. Its total debt equals 113 percent of the GDP. In 2011 it is expected to rise to 150 percent. Approximately 80 percent of the debt is foreign. An increase of one percent in the interest rate would raise foreign bond holdings to 1.2 percent of the GDP. The Greek GDP is US $ 326 billion. By May 19 Greece has to pay US $ 10.9 loan repayment.

Since Greece is a member of the European Union it cannot devalue the currency. The Greek debt crisis has affected the EU. The Euro has plunged to a 14 year low. EU leaders are worried that the contagion will affect Portugal, Ireland, Italy and Spain - the countries which constitute the PIIGS together with Greece.

That is why the EU together with the IMF has approved a joint bail out package for Greece amounting to US $ 147 billion. The IMF loan amounts to US $ 40 billion, the biggest it has granted to a European country.

The bail out, however, has come at a price. Greece has to follow a three-year austerity package, which was approved by the Greek Parliament on May 5. It includes among others big wage cuts, fewer jobs, smaller pensions, higher retirement ages, high taxes, lower military spending, tariff reduction on trade in pharmaceuticals, engineering, transportation and other businesses. There is also a humiliating condition to publish in the Internet losses of State Owned Enterprises (SOEs). This latter condition is considered as a pressure on the government to privatize SOEs.

Even with this austerity package at the end of three years the debt to GDP ratio would approximate 149 percent. The Greek people are protesting. The bail out would come at a huge social cost. According to certain analysts the bail out is not for the Greek people but for bankers in France and Germany who own 80 percent of Greek sovereign bonds. They are now safe from being faced with a Greek loan default.

The Greek crisis has repercussions beyond the country. The first to be affected are the rest of the PIIGS community. They all have similar debt problems. It is doubtful whether the EU would be able to able to bail them all out. Spain for example is a much bigger economy and the bail out has to be several times bigger than the Greek package.

The Euro is crashing. German Chancellor Angela Merkel told the Bundestag 'no more and no less than the future of Europe is at stake and with it the future of Germany in Europe'.

The fall out would extend beyond the borders of Europe in today's globalized world. Those countries Asia, Africa and Latin America that diversified their foreign assets by purchasing Euros and those that changed to deal in Euros for trade would be affected by a crash of the Euro.

In a sense the fall of the Euro was predictable. It was an incongruous state of affairs where there was no political union to back the European Monetary Union (EMU). Each member of the EU was persuing financial policies dictated by its own national interest.

These developments show that the world is being plunged into fresh crises despite the promise of an early recovery from the global financial crisis set in with the crash of the sub prime mortgages in the United States. Capitalism is in crisis. The present one seems to be deeper than the periodic crises it gets afflicted with. It is part of a General Crisis of Capitalism.

The Greek crisis has a lesson for all. It is time to draw them before the time is out.