From the discovery of the critical state of Greece’s public finances and the rapid contagion to most of the European sovereign debt market in 2010, the European Union (EU) now finds itself in a precarious situation: a Greek default has been narrowly avoided, but the reforms necessary to comprehensively address the European Debt Crisis still need to be put in place.
Alarms were sounding at the scare of a Greek default because of the possible chain reaction it could set off in the EU. The default could spur downgrades in credit ratings for other EU member countries, and a compromise in the EU’s financial stability could have serious ramifications for the United States—the effects that would then set off would be much more widespread.
Unless the EU experiences a major collapse, the Philippines will continue to remain relatively insulated from the economic shocks. Two avenues where the effects of the debt crisis can be transmitted to our country are the trade channel and the financial markets. Countries that rely on exports to the EU will experience reduced exports and possibly a reduction in remittances, but while the Philippines does have remittances from Europe, the resilient state of OFW remittances in general and the benefits from intra-Asian trade should offset any reductions from the EU. From the perspective of the financial markets, the Philippines’ banking system does not rely too heavily on external financing and does not have to worry about a credit crisis, which means that this end is also covered.
This does not mean that we should turn a blind eye to the situation the EU is facing, because there are lessons worth learning from the crisis.
What we see in Greece is a country ravaged by issues of tax evasion, corruption and lack of accountability—a system where abuse by the wealthiest and the most powerful is rampant, to the detriment of the rest of the population. These are issues that are not unlike the ones our country has to deal with, especially given that Greece and the Philippines both participate in the same, globalized market economy.
What has happened in Greece therefore underscores the role of sound socio-political policy in economic development. The excessive borrowing in order to fund wage growth, coupled with the prevalent tax evasion that has prevented Greece from repaying its debt, eventually spiraled out of control, sending the country into its current predicament.
Greece has reached a point where it cannot just borrow its way out of the hole it finds itself in, and one key point that the country has to address is to repay the debt through internal means and to fast-track its recovery. However, it should not forget that there is a serious need to reassess the system itself. In order to do both, the foul practices plaguing the country—especially those in the higher echelons of society—have to go.
For our country, Greece represents an extreme what-if scenario. The Philippines is doing relatively well given the fluctuations, but if left unchecked, socio-political issues can threaten to eat the country from within and negatively impact economic development, much like what Greece is going through right now.
The events in Greece help us realize the full extent of what is at stake in our country’s fight against corruption and unjust structures. It is not just about cleansing government practices and bridging the gap between the rich and the poor; it is also about putting our country in a better internal position to respond to and withstand the dangerous fluctuations that are hounding the global market economy.
