Mr. Pangalos also accused Italy of having far more inaccurate fiscal figures than Greece's. His remarks followed those made by Greek Prime Minister George Papandreou, who described Greece as a “guinea pig” for the elite of Brussels – words that put the European Union in an awkward position as it must find a way to keep Greece from defaulting without driving the country out of the euro zone and damaging investor confidence.
While Greece was brutally occupied by the Nazis, that debt was largely repaid in the 1960s. Greece's current crisis, most observers agree, is the result of a frozen and corruption-ridden economy supported by large-scale public spending over the past decade, hidden behind falsified statements that underestimated the size of the country's deficit by a factor of five.
Some European officials seemed to lose patience with Greece. Otmar Issing, a former European Central Bank executive, warned the German parliament against using the country's funds to bail out the Greek economy.
“The crisis is made in Greece,” he told the Bundestag. “It is the result of bad policy, not outside forces like an earthquake.”
As if to drive this home, the interest-rate spread between Greek and German bonds rose to 232 basis points on investor fears that the EU will be unable to rescue Greece and the country will default. (A basis point is 1/100th of a percentage point.)
Greek public debt stands at almost 113 per cent of gross domestic product, or $448-billion, and a deficit equivalent to 12.7 per cent of its economy. Only Italy has higher public debt. Under euro zone rules, the 16 countries using the euro are required to keep deficits below 4 per cent of GDP, although only Germany would currently qualify for membership under that rule.
While protesters and union officials demanded that Greece hold back on austerity measures and spend more on stimulus instead, European officials said that Greece is likely to have deeper austerity measures, including an increase in the value-added tax beyond its current 19-per-cent level.
Greece has until March 16 to deliver its austerity measures, or more may be imposed by Brussels. This occurs as Greece saw its largest banks' credit ratings downgraded by the ratings agency Fitch, further raising the country's cost of borrowing. There were also reports in the Greek press of the large-scale flight of private savings to offshore accounts in Cyprus, further undermining Greek banks.
Greece will need to cut spending – by 10 per cent of GDP over 10 years – while raising revenue and cracking down on its untaxed black-market economy, which counts for as much as a third of all financial activity in the country. This combination could provoke further unrest, and may foretell similar tensions in Italy and Portugal.
If Greece's crisis and accompanying political unrest were an isolated case, it might be more manageable, but this week the turmoil seemed to spread across the belly of Europe.
On Tuesday, Spain's cities were shut down by unionized workers protesting its left-wing government's plan to raise the retirement age to 67 and cut spending in order to deal with its own serious fiscal situation.
Spain has debt of 54 per cent of GDP and a deficit of more than 11 per cent, plus unemployment levels that approach 20 per cent and a housing-market collapse.
And on Wednesday, Portuguese unions announced that they would hold a general strike on March 4 to protest similar austerity measures.
