The economic challenges facing the European Union unsettled investors around the globe on Tuesday as hundreds of demonstrators took to the streets in Greece, unfurling banners over the Acropolis to protest the governmentâ??s new austerity measures.
Signs painted by European schoolchildren were part of a publicity campaign for the introduction of euro notes and coins in 2002.
It was not supposed to be this way when Greece, eager to join first the European Union, then the euro zone, pledged financial overhaul.
â??Now we are paying the price for the fact that we lived above our means, with amazing profligacy, and failed to reduce the role of the state,â? said Yannos Papantoniou, the former Greek finance minister. â??Some say we should have done more.â?
The recent crisis is in many ways a peculiarly Greek tragedy. It is rooted in an ancient nationâ??s epic spending and abetted by the hubris of European leaders whose desire for integration at any cost compelled them to allow political considerations to trump economic realities.
In April 1997, Mr. Papantoniou implored his fellow European Union officials at a meeting in Brussels to print some of the future euro notes in Greek letters.
A stern-faced Theodor Waigel, Germanyâ??s finance minister at the time, weighed in. Latin characters only, he insisted.
Besides, as Mr. Papantoniou recalls the argument by Mr. Waigel, poor small Greece was in no position to make demands. â??He said to me, â??What makes you think you will ever be in the euro?â??â?
Mr. Papantoniou, a socialist who shepherded Greeceâ??s entry into the euro, had the last word. â??I fought hard, and placed a bet with him then and there â?? and I won.â?
Now, as Greeceâ??s European Union partners prepare to bail out the debt-ridden country â?? the first time the 16-nation euro zone has been forced to rescue one of its members â?? many critics, inside and outside of the country, are wishing that Mr. Papantoniou had lost his bet. Concerns are growing that contagion could spread to other countries on Europeâ??s southern tier and even infect the Continentâ??s banking system.
By some accounts, Europeâ??s current plight can be traced to 1981, when Greece, still emerging from the aftermath of a military dictatorship, rushed to join the European Community â?? 14 years ahead of the much richer Austria, Finland and Sweden and even five years before Spain and Portugal.
At the time, President Francois Mitterrand of France opposed the blocâ??s southward expansion, fearing that countries like Greece were not ready.
But those in favor of expansion carried the day, arguing that linking countries like Greece, Spain and Portugal to European structures was the best means to modernize their fragile democracies.
And for Europeâ??s classically educated leaders, who viewed Greece as the cradle of democracy, tying the poor Balkan country to Western Europe, despite its geographic remoteness at the time from the other European Community members, was, Mr. Papantoniou recalled, â??an historic mission.â?
During its first decade of membership, the European Unionâ??s generous subsidies helped catapult Greece out of its Balkan backwardness. By the time 1997 came around, and Europeâ??s leaders prepared to introduce the single currency, some were hailing Greece, enjoying steady economic growth of more than 3 percent under the then Socialist government of the prime minister, Costas Simitis, as a plucky economic stalwart.
For Athens, Mr. Papantoniou recalled that joining the euro was a matter of pride and necessity, as it would stabilize the countryâ??s economy by fending off predatory speculators, while allowing Greece access to credit at low interest rates because it was part of the rich euro club.
â??Once we were in line to join the euro, we started to transform from a third world country to one that aspired to look more like Switzerland,â? he said.
But Greeceâ??s path to the euro was far from assured. Public opinion in Germany, scarred by the memory of wartime hyperinflation, was always wary of giving up the Deutsche mark, and the German government insisted on tough conditions for the countries that wanted to join. Budget deficits were supposed to be below 3 percent of gross domestic product; debt was not to exceed 60 percent of G.D.P. and inflation could not top 3 percent.
In December 1996, the currencyâ??s rules were toughened in a so-called Stability Pact, intended to punish with costly fines countries that persistently broke the rules once inside the euro zone. The unspoken intention was to raise the barrier for Southern European countries, which were seen as having looser, more inflationary economic policies.
Reporting was contributed by Stelios Bouras in Athens, Stephen Castle in Brussels and Jack Ewing in Frankfurt.
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