Greek lessons

The central issue Israel faces in light of apparently never-ending European debt crises is ever-present risk that euro could be permanently damaged.

Greek parliament 311 (photo credit: REuters)
Greek parliament 311
(photo credit: REuters)
In late October, the Greek financial crisis seemed to have once again entered an end phase, with a new prescription that was supposed to solve it once and for all. With great pressure and after an all-night session at a European Union summit, a group of European banks agreed to write off 50 percent of the Greek debt they held.
Then on Monday, Greece’s Prime Minister George Papandreou announced that he would put the latest bailout plan to the people in a national referendum. Since then, with the G20 summit also in progress, chaos has broken out, in financial markets, in Greek politics and across the EU. The latest crisis has several aspects and much can be learned from them.
One of the most important lessons of this two-year-old financial crisis is the importance of fiscal responsibility.
In Israel, this is especially pertinent as the country faces the Trajtenberg Committee’s recommendations and continued calls by social protest leaders to rapidly expand our state budget without any plans to pay for the expansion.
For more than a decade Greece lived far beyond its means at the same time that it enjoyed largesse from the EU, generous lending from corpulent banks and a lackadaisical approach to tax collection.
Greece had and continues to have an inordinate number of public sector employees (about one out of four people receive their salaries from the state) and has a high unemployment rate among recent college graduates.
Israel also has a bloated public sector workforce (700,000 out of 2.2 million wage earners) and suffers from problematic tax collection in certain sectors and rapidly expanding complaints by college graduates that they are not obtaining the jobs or the lifestyle they desire. However, Israeli social protesters, unlike their Greek counterparts, have been peaceful and have, for the most part, exercised restraint.
One issue that resulted in the latest chaos in Greece is the decision by the government, after having gone hat in hand to the EU summit, to submit the bailout to a referendum. The Greek government thus deceived the EU leaders and financial markets into thinking that a solution had finally been found, only to create this newest hurdle of submitting the question to the people.
The EU has been plagued by problematic referendums since 2005, when French and Dutch voters rejected a proposed EU constitution. In general, Europeans feel the EU is too cavalier in its attitude toward local sovereignty. The referendum issue in Greece, however, has thrown the government into chaos, with a vote on a no-confidence motion expected. The outcome of the vote (unknown at press time) risks triggering an election, at a moment when the country can ill afford a changeover in power.
The Greek crisis has overshadowed the G20 summit. This caused the discussions there to focus on the problems of a relatively small and insignificant economy (Greece’s GDP is 32nd in the world) rather than on some of the broader issues that the G20 might otherwise address.
The central issue that Israel faces in light of the apparently never-ending European sovereign debt crises is the ever-present risk that the euro could be permanently damaged. A weakened EU will mean that the Europeans can play a less constructive role in the Middle East, where anyway their role is timid and open to criticism.
However, Israel has no interest in the collapse of the euro, which would deeply affect our Mediterranean economy and open the door to the increased financial power of China, Russia and developing nations – most of which, unfortunately, have not in the past tended to side with Israel on core issues relating to our security and welfare.