by HAL AUSTIN THE MELTDOWN in the Greek economy and its spreading contagion in the rest of the eurozone is not, as many people suggest, a little domestic difficulty.It is true that for the last ten years the Greeks have been taking the rest of the eurozone for a ride, extracting as much as possible out of the collective pot while making a minimum contribution – and topping it all by taking retirement at age 53 and paying state employees for a 13th and 14th month of pay under the guise of Easter and Christmas bonuses. Who do they think they are, Barbadians?But the chickens have come home to roost and the nation is paying a huge price for its profligate past with savage cuts in civil service salaries and state benefits, and an overall reduction in government spending and cuts in revenue to a manageable size. First, the European Union (EU) and the International Monetary Fund (IMF) came to the rescue with a US$140 billion bail-out, which quickly rose to nearly $1 trillion. This, however, is in real terms a fiscal stimulus which will be used up in the three-year period, leaving Greece back where it started with huge structural problems. Greece depends on tourism for its revenue and it does not have a huge manufacturing base or dynamic ntrepreneurial sector to fall back on. So, the normal fiscal kick-start of cutting interest rates, devaluing the currency, making exports cheap and attractive is not an option. As it stands, Greece, which represents only two per cent of the eurozone GDP, owes French banks $75bn, Irish banks $8.5bn, and stricken Portuguese banks $9.7bn, none of which can afford a default. Portugal’s banks owe a further $286bn,, $86bn alone to Spanish banks, which owe $1.1 trillion, $30bn of which they owe to Irish banks and a further $31bn to the Italians. Even Britain, which is outside the eurozone, is owed $15bn by Greece, $77bn by Italy, $24bn by Portugal, $114bn by Spain, and £188bn by Ireland.However, Greece is just the worst of a long list of nations just balancing on the edge of financial disaster as the impact of shock transmission in terms of adverse liquidity, a tightening of loan supply through an understandable caution in interbank lending, and by both local and overseas-owned affiliates. And if this sovereign debt mountain collapses, it will bring a number of leading banks down with it, since the contagion has gone far beyond the confines of the 16 eurozone nations, or even the whole 27 nations of the EU, reaching as far as the United States. According to the Bank for International Settlements, the global central bank of central banks, American banks are exposed to about $1 trillion of European debt.The small matter of the Greek over-exuberance has all the making of the sub-prime bubble that tilted the United States, and then the global economy, in to an historic meltdown. As the sovereign crisis deepens right across Europe, Asian central banks are rushing to the safe haven of the greenback, with China alone buying US$140.5bn in United States treasuries during March – more than $100bn up on February. China now has $895.5bn in United States treasuries, and total foreign holdings of nearly $4 trillion, one reason why any devaluation of the greenback will hit China’s economy very hard. That aside, the anti-euro brigade has been emboldened with this crisis and to a man and woman are calling for the end of the euro. It is political and economic nonsense. Despite their prosperity, none of the twenty-seven member of the EU could survive going in to the 21st century if they were to leave the eurozone. In fact, the eleven outside the eurozone are all battling for survival, including the United Kingdom. With a market of 500 million, key economies such as Germany, France and the United Kingdom, and enormous growth potential, including the whole of Southern and Eastern Europe, the EU remains the only northern geographical area which could challenge the Asian economies growing medium to long-term dominance. Finally, over and above the tourist traffic, the Greek crisis has important lessons for Barbados and the rest of CARICOM as it spells out how not to go about creating a single currency. Not only that, the majority of tourists to Barbados come from Germany and the UK and if these economies are experiencing difficulty then households will cut back on their spending. Long-haul tourism is a luxury none but the rich can afford.
