Greece’s problems are getting worse, not better. And there seems no obvious solution to them.
Does this matter to the chemical industry? Yes. Greece may not be a major player in chemical markets. But it is a member of the eurozone. And so its financial difficulties could prove very disruptive for any company that trades in euros.
Greece, like some other eurozone members, joined the euro in 1999 for prestige, not out of conviction. It never made much effort to match its spending with its income, and it now turns out that even the figures it did publish were false. Its excess of spending last year was 12.7% of GDP, compared to the supposed ‘limit’ of 3%.
So what happens next? As former EPCA speaker Martin Wolf notes, none of the alternatives look very attractive:
• Will it introduce meaningful spending cuts? Unlikely, as that would plunge the country into deep recession overnight (and make the deficit larger in the short-term).
• Will other eurozone countries bail it out? This also seems unlikely. Would the German public, for example, would be happy to do this?
• Will it be forced to default on its debts, or to leave the eurozone and devalue? Possibly, but this would create a major crisis of confidence for the whole eurozone.
There are no good alternatives available. So probably the Greeks will continue as they are, and try to ‘tough it out’. If they are lucky, this will work. If not, the eurozone will then have to confront the question of whether it becomes a political union, and not just a currency union.
Germany’s Chancellor, Angela Merkel, is not given to over-statement. Her comments on the situation well summarise the problem: “the Greece example can put us under great, great pressures. Questions are being asked that are anything but trivial. As a result, the euro is in a very difficult phase for the coming years.” Chemical company CFO’s are no doubt already preparing their contingency plans.