Even with debt talks currently underway, the dooming cloud of default and contagion still hangs over Greece’s shoulder. The Greek political muddle risks the country of further distressing their increasingly faltering economy. However, the solution may not be as simple as it seems.
Two years after having their bonds rated as junk and having been through a myriad of both proposed and enacted austerity measures, Greece sits on an estimated debt of 160% of GDP. It seems that no measure so far has had any significant impact on altering the course of the Euro-member’s economic outlook.
In the midst of all the recovery efforts, the political health of Greece had been faltering as well with Greek Prime Minister George Papandreou resigning late last year after issues with partial Greek Debt write-down of 50%.
The failure of government officials and bondholders to strike a deal on debt continues to invoke fear in the markets and global economy. Contagion, if not properly guarded against, could prove to undermine any progress made on recovery thus far, further launching related countries into economic distress. Nevertheless, argue an exit from the Euro may be just what is necessary to prevent Greece from further troubling the other Euro-member nations.
But a Greek exit from the Euro may spell more trouble than what it’s worth. Legal documents, contracts, and the general way of life would be submit to chaotic confusion for a period of time perhaps long enough to prevent any meaningful changes to occur in Greek spending. For now, Greece wants to remain.
With fears of contagion and spillover, it is imperative that Greek and EU leaders come to an effective agreement over how to solve the crisis as efficiently as possible.
- Patrick Malanga