Greece on a Grease Pole – “Mangala on Sunday”

Greece is falling apart.

The unemployment rate is 25%, four out of  ten children live in poverty.  Athens is overcome with smog in winter as residents too poor to afford electricity burn everything and anything they can to stay warm.

As the fear of a total financial meltdown grew so widespread that Greeks emptied over a third of the country's ATMs on Saturday in a desperate attempt to pull out as much money as possible before the banks collapse. Businesses are operating on Cash on Delivery. No cash; no delivery.

Greek citizens will vote today in a referendum to accept the terms of an international bailout deal for the country, yet many people acknowledge they barely have a clue as to what, exactly, they are voting on.
Last time Greece  held a referendum was in December 1974, after the collapse of the ruling military junta. The question was much easier then. The Greeks were asked what type of government they would prefer, and the choices were pretty clear — king or republic. Voters picked republic.

Greek crisis has been an good example of how bad management of public finances can lead to an economic catastrophe.

Greece has a long history of fiscal trouble. Both fiscal and governmental corruption lead it's economy to be highly unstable - the corruption of government and public spending,inefficient bureaucracy and contagious tax evasion played a major part in leading up to this crisis..

Greek politicians have traditionally viewed the provision of public sector jobs and benefits as an important way to grant favours. In order to do that, Greece continued to borrow heavily from international capital markets to finance public sector jobs,  pensions and other social benefits.

Also, high consumer demand resulting in high volume of imports, has been one of the causes  behind this undue deficit.

Theses causes would also resonates true with Sri Lankans. The Greek Crisis could well be a lesson for the Sri Lankans as well.

Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece.

Some private investors who subsequently ploughed back into Greek bonds, betting on a comeback, regret that decision. Sri Lanka’s Central Bank investment of about 22 million euros valued last year at more than Rs 3.4 billion in Greek Government Bonds could be lost to Sri Lanka, unless Uncle Sam comes to her rescue as a carrot by  installing a more pliant government instead of a China friendly recalcitrant one.

Greece was once bailed out in 2010 after the GFC crisis. The bailouts came with conditions.

Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. Many Greeks, blame the austerity measures for much of the country’s continuing problems.

Some countries like Australia chose an alternative path by spending it's way out of Global Financial Crisis.

This month, Greece owes the European Central Bank a 3.5 billion euro payment. If there is no international bailout program in place by that time, Greece may be taken off life support.

A Greek default would mostly just affect Greece unlike Spain and Portugal who are backed up by European lenders . That denies the Greek government its most powerful tool in negotiations: a threat to just pick up and leave the euro.

But the truth is, Greece didn’t ‘get’ the bail-out funds. It was a low interest loan with strong strings attached which went to Greece’s creditors (banks) who had taken big risks knowing that they would get a bailout if things went wrong. The people hardly benefitted from that bail out.


Greece could learn from Argentinian economic crisis and its recovery. Argentina was a bigger basket case in early 90s. it's inflation rate was over 2000%. Then the Argentinians had to carry their cash around in wheel barrows. Since Argentina defaulted on Government Debt and devalued the Peso, her people went through much hardships but they have managed to climb out of the abyss. The inflation is now 10 -20% depending on who is supplying the data. Argentinians couldn't afford imported goods so they consumed locally manufactured products, kicking their unsustainable habits. The government collected taxes more effectively and controlled government spending better. in Now, Argentinian real GDP per capita is double of the figure in 2002. There is always light at the end of the tunnel.

So, today Greeks should just tell them to shove it, vote "No" and default on their debts and return to the drachma.

It will be tough at first. But if they can run a balanced budget themselves (as they would have to under the bail out conditions anyway) and improve trade competitiveness via a lower exchange rate. Interest rates will be much higher than in the Eurozone so within a few months, capital markets might begin lending to them again. Soon enough, the economy will start to flourish.


That’s a much better option than staying in debt servitude for decades to come.

As the Sri Lankans would say "one must climb out the well from the same well opening one fell into it"


Would the Greeks have the intestinal fortitude to vote "NO".


That is the billion dollar question.