Greece on the Brink, Risks “Vortex of Self-Destruction”

Greece’s former prime minister predicts further economic contraction if the country exits the euro.

Prime Minister Lucas Papademos of Greece addresses parliament, November 16, 2011
Prime Minister Lucas Papademos of Greece addresses parliament, November 16, 2011 (Greek Prime Minister’s Office)

Former Greek prime minister Lucas Papademos urged leaders in his country on Thursday not to push it toward a “vortex of self-destruction” that would result from a eurozone exit.

Greek appears increasingly likely to leave the single currency union as the radical left-wing Syriza party, which has promised to tear up the conditions of Greece’s two international bailout agreements, is polling well ahead of this month’s parliamentary election.

Syriza leader Alexis Tsipras said yesterday that if he wins the vote, he will not fire any civil servants, scrapping the current pledge to cut 150,000 public-sector jobs by 2015.

Papademos said that if Greece does not adhere to the conditions of European and international financial support and is forced to give up the euro, the economy could shrink by another 20 percent and inflation will jump to 50 percent.

A steep devaluation of a newly introduced drachma is highly likely. The immediate effects on growth could probably not be offset by cheaper Greek export because Greece isn’t an exporting nation. Rather, it is dependent on the import of foodstuffs, fuel and industrial products.

Russian oil and gas company Gazprom warned this week that if outstanding bills worth €120 million aren’t paid before June 22, it will cut off the gas supply. Greece depends on natural gas for roughly a third of its electricity production. The state energy company is reportedly in negotiations with banks to secure a loan to be able to pay Gazprom.

Greece’s state-owned health insurer is also short of cash. It hasn’t paid pharmacists for months and owes them €540 million. Pharmacies are refusing to sell medications to otherwise insured patients unless they are paid in cash.

Greece’s shipbuilding industry, once highly competitive, is struggling. Over 90 percent of its union workers are jobless, even if Greek shipping companies own 16 percent of the world’s merchant fleet, more than any other nation.

Major German and French insurance companies now refuse to cover exporters shipping goods to Greece.

The country is on the brink of bankruptcy and it seems highly unlikely that the rest of Europe will continue to bankroll Greece’s expenditures if it elects an anti-bailout government next weekend.

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