Fiscal Cliff 2012: Why Greece Has Already Fallen Over Theirs, and What Can Be Done to Fix It

After the marathon negotiations about another Greek bailout, European Union leaders finally reached an agreement on Tuesday. They agreed to cut the country’s debt from 124% of GDP by 2020 to around 110% by 2022. After being in a recession for six years, with its GDP declining by a quarter since2008, Greece has already fallen over its fiscal cliff. However, the EU leaders were there to save it from doom before, and they will do the same this time, because Greece is too important to fail.

The numbers always come first. Even though Greek national debt is currently around 190% of its GDP. If it is looked at on bigger scale, the whole Greek debt is only a small percentage of the European economic output. Simply said, if the EU countries would share Greek’s debt, that would not be a big burden for them. However, currently in Europe there is no political will to do that, because Greeks did, after all, manage to put themselves in this situation. Greek leaders blatantly lied to the EU, enacting foolish fiscal policy and submitting fake reports to Brussels. On the other hand, the very cost of Grexit would have a price-tag of a trillion euros, and that is simply not a viable option.

Moreover, there is more depth with which we should address the Greek question. Namely, the EU has to send a signal of unity when dealing with this case. Only by acting strong and unitedwill they send a message to investors that the European market is safe and protected. By doing so, the highly needed trust in the perspective of European development would be regained and Europe will begin to see the end of the financial crisis. The EU leaders are aware that Greece has to be saved, and they will do everything they can to make it happen. Moreover, that will prevent extreme right parties in Greece to gain even more popularity, and it will signal to savers and investors that their property in Europe is safe. This will prevent them from taking money out of vulnerable economies such as Greece, Portugal and Spain and therefore creating even bigger problems.

To recap: if Greece leaves euro and the EU, the consequences will be excruciating. The country will certainly go back to drachma, inflation will be huge, as drachma will devalue dramatically and quickly and that will put Greece in even harder position when repaying its debts. Also, without the EU’s help, Greece is likely to fail to repay its debt, therefore sending a signal of insecurity to investors and creating a dangerous precedent, which will in the long run result in money being taken out from the weak economies. Domestically, Greece will face a rise of the extreme right, and growing xenophobia.

Finally, no matter how expensive Greek rescue will be, there is something that cannot be measured in terms of money. That is the idea of European solidarity and unity in the beautiful diversity it offers. The help will come for the Greeks, and it will come from Europe — their home.

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Marko Ceperkovic

As Policy Advisor at the U.S. House of Representatives Marko is dealing with Foreign Affairs, Defense, Immigration and Human Rights issues. At the same time he is a fellow at Johns Hopkins SAIS, participating in the Aitchison Public Service Fellowship in Government. Before coming to Washington, Marko lived in France, studying at the Institut d'Etudes Politiques de Paris. As former Executive Director's Assistant at Helsinki Committee for Human Rights he led Human Rights Schools for Western Balkans, while at the same time presiding over the Commission for Youth Rights in Serbia.

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