The Greece Economic Crisis in a Nutshell

This study is centered on understanding the roots behind the fiscal crisis of Greece and its implications and effects in the European Union. Though the issue in its superficial level seems to be a purely national concern and not altering the international system, knowing that Greece is first and foremost a member of the European Union, it does has its way, though how small an economic entity it is, vary the strength and might of the European Union.

          Thus, we will first view the history and lay down the timeline on the turning point of the Greek economy on its way to the pitfalls of economic crisis, the Greek government’s solution to rise above the predicament, and the international economic society’s means in aiding the country.

          After laying down the timeline, we will determine the antecedents of the 2009 economic crisis through understanding the failed government policies which lead to the fall of the Greek economy. Then, in bird’s eye view, we will see the present conditions of the Greek economy through its grassroots both in the rural and urban areas.

          Though the aim of this study is to understand the causes of the Greek debt crisis, through viewing these causes we will understand how the International society shaped their measures in aiding the debt-ridden country. Thus, this study will give us the full view of the whole picture of the International society’s efforts in relation to the Greek economic downfall.

I.            SITUATIONER

Greece is a member of the twenty-seven-membered European Union. As a developed country, Greek economy mainly revolves on the service sector and industry and only a small percent on agriculture.

Early in 2009, the Greek government suffered a major economic confrontation. It started when George Papandreou took over as prime minister in October 2009 and found that the government had been understating its public debts for years (Armitstead, 2012).

          In 2010, the debt reached to the heights of 290 billion Euro. An event that caused a ratio quadrupled than the allowable ratio of the Growth Pact of the Euro Zone. This effect led to challenges not only to the Greek government but to the members of the Euro-Zone (Muhamad, 2011)

          Policies were made by the European Union in order to halt the Greek debt crisis’ effects to the Union and of course to the Greek economy itself. Bailouts were given to the Greek government to pay for these debts.

But, these bail outs too will affect those borrower countries in turn. Thus, this study will help us analyze how the Euro-zone will find a way out in this crisis without leaving Greece unaided.

II.          BODY

On January 1, 2001, Greece has become an official member-state to adopt the Euro currency, twelfth following eleven other states in the European Union. During this particular time, Euro as a currency was officially introduced to Greece. Possessing the same rights and obligations with the rest of the 11 member-states, the Bank of Greece officially is a full member of the Eurosystem (ECB, 2001).

According to one of ABC News Blogs, becoming a member of the European Economic and Military Union takes up a process of series study on the economy of the applying state. Certain areas are highly considered and scrutinized to ensure that the joining of the applying state would not compromise the stability of the Eurosystem. Criteria which bases the membership of a European state includes inflation rate, budget deficit, public debt, long-term interest rates, exchange rate. Unfortunately for Greece (with no specific reason found in this research) used the country’s 1999 data, which took a dismal miscalculation of the criteria mentioned. As a result, a 2004 audit found out an under-stated budget deficit in the country’s economic statistics.

Shuttling upward, public sector wages creased causing a soaring public spending—a good indication and sign of a rising economic future. But despite these raises in income and spending, massive tax evasion cases sprouted which obviously ruins the natural fiscal flow of the country (Hamilton, 2012). It is simple logic that when people and certain businesses in the country don’t pay its taxes, government will receive lesser and lesser revenues which in turn would affect the execution and carrying out government policies, programs, and projects. With no inflow of revenue, time will come that the coffers of the government will be emptied or at the least depleted dramatically. Thus, with no other option for the government to continue running, governments loan money from more capable states and willing organizations. This is what happened to Greece—a more serious and grim situation than this though.

In Dimitri Vayanos research, Greece’s external debt rose to a very high sum which reached to almost twenty times to the country’s education spending. In his research, 82.5% of the country’s GDP comprised the whole Greek foreign debt (Cabral, 2010).

What made Greece unable to pay its debts can be explained simply through the idea of loans and money borrowing. When countries (or even people for that matter) borrows, it consumes more than what it produce out of it. The money borrowed from foreign sources was used by the Greek government to finance the regular government processes (e.g. wages and payments to public servants, infrastructure projects, financing government programs and etc.). Most of these could not return back investments due to what were mentioned earlier like massive tax evasion cases, thus to pay a previous loan, or even to pay just the interest, Greece borrows from another source or repackages another borrowing deal. This, compounded with the fact that Greece has an outstanding deficit, made a cycle went on and on—making a huge snowball from an ordinary snowflake. What made all these even worse is the onslaught of the global financial meltdown that totally left Greece on its knees, unable to get up.

How this domestic fiscal problem of Greece does affect the European Union and the World might be the most intriguing questions the world might have in their minds. Simple. European Union made one single currency to all its members to be of help in times of needs when a member-state is in need of one. With the same currency, funding through these states in need will be a smooth flow. But, what happens here is that when the global financial crisis struck, it has also affected the European Union much, leaving an EU lesser capable of aiding its member-states. And since the situation has already been baked, now that states like Greece and Portugal are in need, countries with stronger economies will now have the burden of aiding to the needs of these debt-ridden countries. Thus, Greek debt crisis crucially affects the rest of the members of the European Union, especially those stronger powers like that of Germany.

Now, the Greek government revaluates its policies and laws, hand in hand are the programs and plans of the Union to alleviate the demeaning situation of the Greek economy. For example the European Central Bank of EU and the International Monetary Fund announced a major financial assistance of a three year package of €110 billion (about $158 billion) with and the IMF pledged to contribute €30 billion (about $43 billion)for Greece with an agreement that the Greek government will commit to a renewed economic reforms. Another is on July 2011 when the organization set another crisis response, and made another package and calls for holders of Greek bonds to accept losses, as well as for more austerity and financial assistance (Nelson, 2011).

Recent evaluations have observed that though policy applications do not prove much of a great assistance to the bloating Greece debt, many believe that the policies achieved the aims which are aimed to prevent a disorderly Greek default, to restore

debt sustainability in Greece, and to prevent the spread of the crisis to other Eurozone countries and the global economy. The first one is a sure success but these two others are still on the process of realizing though.

III.        CONCLUSION/ RECOMMENDATION

The Greece debt crisis is no more or less than experiencing the same economic and financial problems with most of the developing nations of the world. Some might even be experiencing even worse. The Greeks do not really suffer pressing problems like famine, hunger and poverty. But, one thing sets Greece apart to the rest of the nations who share the same fate, Greece is tied up with 11 more nations which have economies of their own through the European Union.

With this possibly irreversible fate, more stable states, or even powerful states suffer with the responsibility of rebuilding the Greece economy so as to prevent a slow collapse in the Union. With a less than powerful European Union after the 21^st century global financial meltdown, European Union is too weak not to be affected by the dilemma of this singular nation.

It might take many brilliant minds to solve the Greece financial crisis and the European Union tangled fate on the nation, but one thing is certain, with a more collaborative and cooperative atmosphere within the Union and to the rest of the world state and non-state actors, Greece will soon find a way out.

 The Greece’s pressing problems to date is the high debt, high deficit and a low competitiveness in its market and industry. This singular fact is the main cause why Greece’s possibility of borrowing money to other states and organizations is compromised and blocked with high interest rates. That is simply because, these states too are concerned of their own interest—and by the looks of the Greece’s situation, lending Greek government the money might put theirs in jeopardy.

Thus, the only way how Greece can set itself free, or to the least improve its current situation is to solve the three pressing problems. They must start with the third and last problem—and that is through revaluating and improving the low competiveness of Greece’s industry and market. With the success of improving tis economy, governments across the globe will no longer loose its confidence of letting Greece borrow their funds to rebuild its own economy.

The Possibility of the Next Big Clash

The drastic economic rise of China paired with its surprising changes in increasing its participation to the world affairs sparked the proponent’s interest in developing a comparative analysis to this major development in relation to the United States position as the major superpower of the world for the past decades. China and the United States are undeniably two different worlds, with different and varying ideologies, principles and views not only in governance and politics, but to almost every aspect to society present. This singular idea heightened the proponent’s curiosity and led her to questions like: “How would it be like, when China replaces the US world supremacy?” “Would socialism and the hints of it be the new mantra of world order, replacing Democracy?” “Would US gracefully accept this defeat, or the beginning of this replacement will mean war and bloodshed?”

Therefore, in answering all these questions, we must first make a systematic, fact-based and research-oriented study on the possibilities and “impossibilities” of this reign change through looking into the dimensions which will lead us to understand the competition level between the United States and China.

With the prior knowledge of how US plays a major role in the international arena, it is also vital to look into how the United States respond to the sovereignty issues to territories confronted by Chinese claims. Here we will decipher whether US is being aggressive against China, either to maintain its reputation as a major police in international issues (whether solicited or not), or will it choose to be mum and safeguard its relationship with China to avoid even larger brawls.
Therefore, in order to answer all these queries, it is essential to lay down not just facts and figures, but concepts, principles and theories that would help us get the clearer picture of the future of world order.

To give and take, all these are proofs of the beauty of International Studies as a major field of study. It does not only provide us with facts, concepts and schemes, it facilitates our learning by allowing us to create our own theories and conclusions to major world issues. Here we get to really use our brains to the limit. Thus, this study aims to formulate a concrete, well-built conclusion about the future of these two superpowers—and their struggle to be number one.

I.                    THE POSSIBILITY OF THE NEXT BIG CLASH: An Introduction

“We’re clearly moving to a Post-American world. This is a world that is not dominated by the United States but not dominated by anyone else yet either.”— Fareed Zakaria, a notable columnist of an online news forum has stated this very strong line. Undeniably, in so many ways, this statement is true. We are indeed in a multipolar world dominated by no one but a diverse community of interacting states and non-state actors aiming for higher standards of human life. Despite the legitimacy of this statement, we do not put forward any notion that America is in decline. In fact, an ever powerful United States of America, more vigilant and responsible to choosing its own battles is what we have in our midst-- an America that has regained the trust and confidence of the world after the hostile and aggressive years of combating terrorism under the former President Bush’s administration.

Now, without much scrutiny and analysis, we see a rise of Chinese supremacy. The dragon has started to manifest its might in the economy of the world, and even more interesting is its increasing participation in the political aspect of the international arena; a clear manifestation of determination to be at par with the ever strong, ever mighty United States of America.

II.                  China: The Rise of the Next Superpower

Many political analysts believe that world systems and the rise and fall of power is recurring. As clichés put it, “History repeats itself”, I for one believe that it is an uncontrollable fate that sooner or later, the United States of America will be replaced by another major power. Tracing back our history, we have seen major power transitions. The most evident is the rise of Europe following the Industrial Revolution, and the rise of the United States of America, after the civil war.

Now, to support claims of the probability of an emerging China able to replace USA, it is empirical to study hard facts and data to the major aspects defining People’s Republic of China as a sovereign state.

a.       Economic Dimension

According to a major online database centering on studying the economic situation of the world, EconomyWatch.com, as of the year 2012, China ranks second to the United States as the world’s largest economy by both nominal GDP and Purchasing Power Parity. United States of America having a sum of $14,624,180,000,000 while China which ranks close with $10,084,370,000,000.

In addition, from 2010 onwards to present, China overtook Germany as the world’s largest exporter of goods. China rose and took an enormous 17.7% of product exporting around the globe-- a vast chunk in the trade industries among all nations in the world. (BBC News, 2010)

This is a very clear indication of China’s competency to rise to the higher ranks of world polity. Why so? The availability of resources compounded with the influence harbored through trading ties between and among nations surely establishes a very strong foundation of irrevocable power and influence to stir the world order. Idealism aside, with great resources a single state regardless of size, population, creed, can do whatever it pleases.

b.      Military Dimension

Among the nations in the world, only five states possess nuclear weapons. Duly recognized by the NPT or the Non-proliferations Treaty these five states are China, France, Russia, United Kingdom, and the United States. With the enormous value of resources required to build such arsenals, it is certain that only those states with enough power and resources will be capable of building it. Needless to say, this means China is equally capable of fighting head to head with its counter-parts like that of the United States of America.

Another, proof of the great China’s military prowess is the fact that it still holds the title as the world’s largest standing army since early 2000. With an approximate number of 2.3 million army men, China remained in the top rank with United States only second in the list basing on the number of service men available. (Bezlova, 2006)

Though the size of an army can only relatively affect the quality of the country’s defense, size still does matter.

To add, China is one of the three states in the whole world to launch a manned space mission, together with the United States and Russia. This is another evidence of the capability of the Chinese to be at par with the major superpowers of the world.

All these boil down to the quantity and quality of resources possessed by a state. The military prowess of a state is directly proportional to the quality and quantity of resources the state owns. Thus, with the resources China has, achieving military supremacy is never impossible to achieve.

c.       Political Dimension

The mantra of Chinese foreign policy is to "unswervingly pursue an independent foreign policy of peace. The fundamental goals of this policy are to preserve China's independence, sovereignty and territorial integrity, create a favorable international environment for China's reform and opening up and modernization construction, maintain world peace and propel common development." Geared with these goals, China has opened its doors to the world after years of isolation.

Unlike the liberalist’s goals of many states like that of US and European States, China boldly uses the realists point of view of establishing relationship to the rest of the world—China does not devote its time mainly on advancing its ideology to the world, rather a realistic approach of safeguarding its national interest and integrity in the planet.

Indications of opening its doors to the world to forward its own interests, PRC gained admission to United Nations and took the Chinese seat as a permanent member of the U.N. Security Council. China is also a member of numerous formal and informal multilateral organizations, including the WTO, APEC, BRICS, the Shanghai Cooperation Organisation and the G-20.

Having enough resources and military capabilities, China’s political activity and participation to the world completes the ingredients of becoming a superpower. Resources through its rich economy, power through its military strength, and influence through its active participation to world affairs, China sure is on the right track onwards to emergence and transformation from a great power to a major superpower.

III.                WWUSD (What Would US Do): General Overview of US FP to China

The Sino-American relation is viewed by political analysts as a multi-faceted and complex scheme. Both are neither enemies nor allies. Still, both share the same ideals when it comes to the preservation of world order, protection of human rights and safeguarding the environment.

As China competes its way to the top of the chain, United States made strategic plans in halting the possibilities of a power transition, or to the least, created efforts to an effective coexistence in the world political arena.

As US State Secretary Hillary Clinton puts it, when confronted to the question on how US will respond to the rise of China, she said, "We see the Chinese economic relationship as essential to our own country, so we're going to consult and work in a way that will be mutually beneficial. " She continues, “"We see the Chinese economic relationship as essential to our own country, so we're going to consult and work in a way that will be mutually beneficial."

Thus, what kept the US-China relationship together despite threats of competition and battle for supremacy are the economic ties that bind the states together. United States insures a resilient economic tie with China, a very strategic maneuver to halt the doomed power transition and the head to head battle that the 21^st century world greatly fears.

V.            US Actions on Chinese Claim Territories

a. Taiwan or Republic of China

The United States Foreign Policy to Taiwan is in general very complex and distinct. Since the United States recognized the People’s Republic of China (PRC) government as China’s sole legitimate government, US maintained an unofficial yet highly extensive diplomatic relations with Taiwan. These were all based on the framework of the 1979 Taiwan Relations Act (TRA—P.L. 96-8) and shaped by three U.S.-PRC communiqués. U.S.

U.S. policy toward Taiwan are based on the following:

             (1)  Taiwan Relations Act

It remains the domestic legal authority for conducting unofficial U.S. relations with Taiwan today. Much of the TRA deals with the logistics of U.S.-Taiwan relations: the establishment of the American Institute in Taiwan (AIT) as the unofficial U.S. representative for interactions and consular activities with Taiwan, including details about AIT’s staffing, functions, and funding; and the continued application of existing U.S. laws and treaties affecting Taiwan after the severing of diplomatic ties.         

             (2) Three Communiqués between the United States and the People’s Republic of China (PRC)

·         Shanghai Communiqué (1972), in which the United States “acknowledge[d]" that both China and Taiwan maintain there is but one China, declared it did “not challenge that position," and reaffirmed its interest in a peaceful settlement of the Taiwan question. 

•  Communiqué on Normalization of Relations with the PRC (1979), in which the United States recognized the PRC government as the sole legitimate government of all China and “acknowledge[d] the Chinese position that there is but one China and Taiwan is part of China", and

• August 17 Communiqué on Arms Sales to Taiwan (1982), in which the United States stated it had no intention of pursuing a “two-China" policy; that it appreciated China's pledges to strive for a peaceful solution to the Taiwan question; and that it did not plan on a long-term policy of arms sales to Taiwan. 

     (3) Six assurances given to Taiwan, and (4) the Taiwan Policy Review.

The six assurances stated are as follows: Had not agreed to set a date certain for ending arms sales to Taiwan; had not agreed to engage in prior consultations with Beijing on arms sales to Taiwan; would not play any mediation role between Taipei and Beijing; had not agreed to revise the TRA; had not altered its longstanding position on the issue of sovereignty over Taiwan; would not attempt to exert pressure on Taiwan to enter into negotiations with the PRC

b. Tibet

                There is still no legitimacy on the claimed sovereign rights for Tibet by Tibetans against China. China holds it strong that Tibet is part and parcel of the People’s Republic of China. In fact, China sees itself as a major provider of extensive economic support to development of the Tibetan economy using funds from the coffers of the government from PRC taxpayers. Chinese government heads are perplexed on how aggressive and how Tibetan act as if they are oppressed and abused by China despite all the benefits they have received from it.

The main root of this issue is the impact of PRC control on Tibet’s language, culture, and religion. Tibetans believe that PRC government’s interference of their culture and long-held values and traditions are a major disrespect of their very own creed. With this longstanding brawl, the United States plays a crucial role in maintaining its relationship with both sides.

                Generally, the United States of America is not siding to any of both the parties. In fact, America is serious on its efforts on assisting both these parties to pursue measures in solving this cultural dispute to the extent that the recent meeting by President Barack Obama sparked controversies that the US is compromising all its relationship with China just to side with Tibet.

                Thus, the following measures made by the United States towards Tibet will explain the real score behind US continuous communication and relationship with Tibet.

1.       Tibetan Policy Act of 2002

The Act mandates that the U.S. President and Secretary of State will attempt to get China and Tibet to negotiate an end to their half-century of grievances. Its overall purpose is to "support the aspirations of the Tibetan people to safeguard their distinct identity."

2.       Obama’s meeting with the Dalai Lama

Though the meeting angered China, President Barack Obama stressed out that the meeting was part of US-China relations and pointed out that the US position is considering Tibet as part of China and not as a rebel state.

3.       Creation of Special Coordinator for Tibetan Issues within the Department of State whose central objective is to encourage and promote dialogue between the Dalai Lama and the government in Beijing; and a specific declaration of U.S. policy objectives on Tibet, including economic, cultural, and environmental support objectives; release of political prisoners in Tibet; establishment of a State Department office in Lhasa; and an effort to ascertain the whereabouts and well-being of the 11th Panchen Lama.

c.       Spratly’s

Spratly Island is a disputed territory located in the South China Sea, now known as the West Philippine Sea. Consists of approximately 100 more islets made up of coral reefs, sandbars and atolls, the Spratly islands is subject by a longstanding territorial dispute among countries like China, Malaysia, Philippines and Brunei. Each nation claims rights to all or part of the island which resulted to an endless tug-of-war among the states. With China as the most powerful and influential claimant of those mentioned, resolutions on the dispute has never yet achieved primarily because China using its influence dominates and remains stiff in resolving the matter.

The United States of America, being a nation who has the belief that it is pre-destined to be the ultimate police and watch-dog of international peace and prosperity, has applied its own policies to hasten the solution of the problem without anyone being compromised.

Thus, the United States of America geared itself with the following solutions:

1.       Stressing out the importance of the China-ASEAN Declaration of Conduct

This recognized the need to promote a peaceful, friendly and harmonious environment in the South China Sea between them for the enhancement of peace, stability, economic growth and prosperity in the region.

2.       Reaffirming the commitment to the purposes and principles of the Charter of the United Nations, the 1982 UN Convention on the Law of the Sea, the Treaty of Amity and Cooperation in Southeast Asia and the Five Principles of Peaceful Coexistence.

During a speech at an ASEAN Convention, President Barack Obama opined on the continued dispute over the South China Sea, as he said, “South China Sea issue should be addressed in a peaceful way, in accordance with international law, a rules-based regime, specifically the application of the U.N. Convention on the Law of the Sea.”

There’s a common ground between these two solutions formulated and suggested by the United States, and that is heightened regional cooperation. Idealistically, if we be too diplomatic, we would conclude that these solutions were purposely suggested by the United States in order to promote regional cooperation, understanding and mutual respect. Realistically though, this is an obvious escape from the responsibility of solving the dispute, which somehow promotes goodwill to everyone involved. Making this hands-off gesture by the United States will help in avoiding further complications such as an outburst of war.

We must be reminded that if USA would choose to be aggressive and intervening to this dispute, it’s not just China who’d raise arms against America; all of the rest of the four claimants will lose confidence on the mighty America—an event that would compromise America’s influence to the Asia-Pacific Region, and to the world as a whole.

VI.          What’s Next: The Future of US-China Relation

Notions of an inevitable turf are set on the mindset of many to the future of the relationship between the ever powerful America and the rising superstar, People’s Republic of China. Many believe that this is not far from happening since over the years we have seen US aggression and persistence in keeping its place in the world polity. We have seen America apply every means possible, whether be it hard or soft diplomacy, force, or economic maneuvers, just so it could continue to invoke its supremacy to the world. Now, with China’s rise, I for one do not believe that if ever power transitions may occur, it will be a peaceful one. No.

Many of the political analysts known in International relations and World Politics in the likes of Henry Kissinger, meet on one common ground of what may be the future of the US-China Relation. Most arrive in an inevitable conclusion: Cold War; but each varies in their views on how to avoid such.

        According to Henry Kissinger, to avoid the possibility of the next cold war, it is empirical that the aim should be to create a tradition of respect and cooperation so that the successors of the leaders meeting now continue to see it in their interest to build an emerging world order as a joint enterprise.

Quoting Liberal Optimists in a web political magazine, The A Times on the establishment of International Institutions they believe that, “By so doing, they can help to ease or counteract some of the pernicious effects of international anarchy, clearing the way for higher levels of cooperation and trust than would otherwise be attainable. The growth of international institutions in Asia and the expansion of both U.S. and Chinese participation in them are drawing the United States and the PRC into a thickening web of ties that liberal optimists believe will promote contact, communication and, over time, greater mutual understanding and even trust, or at the very least, a reduced likelihood of gross misperception.”

Also, the growth and development of economic interdependence between and among nations of the world insures peace and order Liberal optimists believe that bilateral economic exchange creates shared interests in good relations between states. The greater the volume of trade and investment owing between two countries, the more groups on both sides will have a strong interest in avoiding conflict and preserving peace.

Despite an obvious ideological bias, some political analysts believe that Democratization too can play a role in pacifying any warnings and signs of a possible cold war.  Former President George W. Bush said, “Economic freedom creates habits of liberty. And habits of liberty create expectations of democracy. . . . Trade freely with China, and time is on our side.”

Liberalists believes that regimes that rely for their power and legitimacy on the consent of the governed are less likely to enter lightly into military adventures or to engage in wars whose true purpose is to line the pockets, and satisfy the vainglory, of their leaders. As the number of democracies in the world increases, (as it has quite dramatically, albeit at an uneven pace, over the course of the last two centuries), the likelihood of international conflict should diminish.

VII.         Conclusion

                                “There is a Chinese proverb that speaks of treading different paths that lead to the same destination. Our two nations have unique histories ... We have traveled different paths, but that shared future is our common destination and responsibility.”

--Hillary Clinton, U.S. State Secretary

                                This statement generally is the main goal of not just both the United States and China but to every state in the world. The world seems to foresee a battle for world supremacy between these giants, and that spells not drastic effects to just any region but every single state will be affected. Thus, to sway away from the inevitable, both these superpowers should start acting now.

                                After having laid down the facts and concepts, we could therefore conclude that though there may be hints of an inevitable Cold War between the United States and China, both are going the extra mile of preserving the current world order.

                                We can see that though China remains loyal to its realist’s orientation in dealing with the world—and that is safeguarding and advancing the national interest as the main goal—we can see an open mind willing to partake in the world’s shared vision of achieving sustainable peace.

                                Equally concerned to the preservation of peace and prosperity around the globe, the United States of America remained true to its values—and that is promoting and advancing freedom, equality and justice amongst all peoples of the world.

                                Like Secretary of State Hillary Clinton believes, both may have varying ideals, strategies and beliefs in their roles to the world, together they share a common vision. If both of these states will work in a mutual coexistence bounded by justice, equality, and freedom, through establishing more ties mentioned above (e.g. economic interdependence, cooperation in various international institutions), and though they have differing versions of exceptionalism; they will maintain the current peace and order every person regardless of nationality, and creed now enjoys.

                War may be inevitable, but preventions and solutions too are countless.