Huffpost WorldPost

Fears Grow That Greece May Drag Europe Down

Posted: Updated:

BRUSSELS — Could Greece drag down Europe?

EU finance ministers are pressing their indebted and riot-prone Balkan member to embrace a massive austerity plan and plug its debilitating deficit. But with markets skeptical and the appetite for more bailouts at a low, there are deepening concerns that a Greek meltdown could deal a severe blow to the very European idea of a common currency, and set off a domino effect through Italy, Spain, and Portugal.

Keen to keep Greece from crashing the euro, European Union governments pressed the country Tuesday to stick to a painful austerity program that could cut its ballooning debt at the risk of social unrest.

The EU's economy commissioner Joaquin Almunia warned of a domino effect, saying Greece's debt crisis is already hurting other indebted countries that use the euro as nervous bond markets hike borrowing costs on fears that Greece could default or demand an unprecedented bailout from reluctant EU states.

"The fate of one is the fate of all," he said. "This situation in Greece is having effects in other countries."

Almunia warned the others in the firing line – such as Ireland, Italy, Spain and Portugal – that they may also need to take tough action to avoid a Greek tragedy and the higher costs for selling government debt.

"It's up to them to take decisions to be better protected in the face of this nervousness of the markets," he said.

At stake is the very credibility of the euro, a currency union with a central bank but no central economy management. The economic crisis has exposed the flaws of 16 countries moving in different directions to spend or save their way out of trouble.

Eurozone nations are trying desperately to patch up the cracks, promising Monday to do more to run their economies in a uniform way and accepting possible warnings when they go astray – a major shift for sovereign nations that are not keen to see more EU oversight.

But Greece is the real litmus test.

If Greece can't deliver the cuts it is promising and risks not being able to repay its debt, it will likely seek a bailout from EU members to rescue it from a crisis of its own making, where failure to curb a bloated public sector and endemic corruption have dragged down economic growth.

Finland's Finance Minister Jyrki Katainen bluntly said that would be asking too much. The Greeks couldn't expect "any outside help" and "it's purely up to them how well they will treat this crisis," he told reporters.

Greece's plans to hike taxes, clamp down on tax evasion and cut public spending won the backing of one of the world's biggest credit rating agencies Monday, when Moody's Investor Services said it was "relatively well designed."

Moody's didn't change its negative outlook on the country's debt, citing uncertainty on whether the country will implement the harsh cuts.

Other European governments aren't so sure either. The Netherlands' finance minister Wouter Bos said the Greek budget "needs to be more substantial" because it isn't making long-term reforms.

"This is just a first step ... but it is not enough," he said. "The plan relies on the fight against corruption ... You don't get there with tricks like that."

Greece's finance minister George Papaconstantinou told reporters that "the Greek people realize the seriousness of the matter" and that he was determined to implement his austerity program.

He faces trouble from the country's largest trade union groups, who are calling for strikes to protest what they say are unfair measures targeting the poor instead of the rich.

The General Confederation of Greek Workers, or GSEE, called on Tuesday for a 24-hour general strike in late February, although it did not immediately set a date. The country's main civil servants' union, ADEDY, has already called for a 24-hour walkout on Feb. 10.

"There is a fear by the markets and by Europe's conservatives that the government won't manage to annihilate us. Well, (it) won't manage to annihilate us," GSEE spokesman Stathis Anestis said. "We won't tolerate it, we won't allow it."

Anestis said the planned strike in February would be the first of many, and called on the government to stimulate the economy rather than increasing taxes that would affect those on low incomes.

However, a recent opinion poll showed that a majority of Greeks – 68.7 percent – believed the country must follow the EU recommendations. The poll also found 61.9 percent of respondents did not believe Greece would go bankrupt, compared to 35.8 percent who did.

A slight majority of Greeks approved of the government's handling of the economic crisis, with 58.6 percent saying they viewed its efforts favorably or relatively favorably, compared to 38.6 percent who viewed it unfavorably.

The poll, carried out by the GPO polling company for the Mega television channel and widely published Tuesday, did not give a margin of error.

____

Associated Press writers Robert Wielaard and Leslie Patton in Brussels, Elena Becatoros in Athens and Pan Pylas in London contributed to this story.

Around the Web

Greek Debt Threatens the Euro - BusinessWeek

Greece Threatens Bankruptcy, And the Eurozone - Megan McArdle

Investors shun Greek debt as shipping crisis deepens - Telegraph

Greek debt crisis tests euro zone credibility | Reuters