Skip to content

3Qs: Evaluating Europe’s economic crisis

Photo by Heratch Ekmekjian.

Amid the economic crisis plaguing Europe, the prime ministers of Greece (George Papandreou) and Italy (Silvio Berlusconi) resigned last week. They have since been replaced with the appointments of Lucas Papademos in Greece and Mario Monti in Italy — men with backgrounds in banking and economics. We asked Northeastern University communications studies professor Richard Katula, an expert on Greek culture and European affairs, to analyze the economic and political turmoil in Greece and Italy and its impact on the European Union. 

What has caused the drastic economic and political instability that Greece and Italy are experiencing? 

There are several factors at play here. First, Greece has dealt with issues involving corruption. In March, Kathmerini, the country’s leading newspaper, even cited a study from the Athens University of Economics and Business that found one-third of Greeks polled said corruption is the country’s worst problem. Greece also has few financial regulations governing gifts to political campaigns, so it’s difficult for an ordinary person to run for office because those in office are so well financed by corporations. Most people work for the government, which has become so powerful that no one dares to challenge it. This combination has led many Greeks to turn their backs on the corruption and government itself.

Greece, which also has an aging population, has no social security system and a paucity of private pension funds, so the majority of Greeks rely entirely on a government-run pension program when they retire.

In terms of external dynamics, Greece and Italy are members of the European Union. These countries have not established systems for sharing their wealth and their problems through the redistribution of money from the richer states to the poorer. And Greece and Italy were cooking the books, making it look like their GDPs were close to the Eurozone standard. When it came to light that Greece and Italy were fudging their numbers, it was too late.

In the wake of the resignations of Papandreou and Berlusconi, will Greece and Italy’s new leadership help to relieve economic and political turmoil?  

The short answer is no. There is no escaping the economic realities of these countries. Greece, for instance, has a total debt of more than €340 billion ($485 billion). And the bailout only covers their expenses not their debt. So, this is a temporary economic fix. The Eurozone has simply “kicked the can down the road” as they say. Only a return to the drachma and the lira will help. It won’t pay the bills, and Greece and Italy will have to default, but it will pave the way for a future of an economy the international community and investor can trust. Politically, Greece is just rearranging the deck chairs on the Titanic.

Going forward, what effects will these economic and political developments have on the European Union on the whole?     

The future looks bleak for the Greek and the Italian people. I have retired friends in Greece who will have to make car and mortgage payments while facing a 40 percent cut in their pensions. Remember, the government pension is the only source of support for these retirees. Stores will close, people will live very frugally and life in general will become a dull, painful slog from day to day. Young people will postpone education, marriage and buying a house, and retirees will be out looking for work if there is any. The best and brightest will leave Greece. The Chinese and Germans will buy or lease huge tracts of land. A whole way of life is about to change.