Greek Finance May Be Headed Toward a Tragic End

The tale of Papaconstantinou Agonistes is based on an age-old story of debt, foreign relations, and trouble on the domestic front. Greece borrowed heavily during the years of cheap credit and has now ended up with a burdensome debt that exceeds 12 percent of GDP. That is way over the 3 percent debt limit that Greece is supposed to abide by as a member of the European Union.

Greece's finance minister, George Papaconstantinou, has promised to slash spending and bring the debt level down to 2.8 percent of GDP, but fellow EU finance ministers are skeptical. Greece’s deficit-cutting proposals “are a step in the right direction, we’ll have to see whether they’re enough,” Luxembourg’s Jean-Claude Juncker says. Fellow finance minister and skeptic Wouter Bos of the Netherlands says Greece's cost-cutting plan relies too much on onetime measures and "needs to be more substantial."

The Greek government also must cope with domestic pressures. Cost cuts will not sit well with the people of Greece. Riots erupted in Athens last month as students marked the one-year anniversary of the killing of a young man by police. While the unrest isn't explicitly linked to dissatisfaction with the economy or the government, it reflects a high level of political volatility and a willingness to use violence for political and social ends. Severe austerity measures run the risk of igniting a powerful wave of protest.

If spending in Greece isn't brought under control, Greece could be forced out of the European Union, which would be a blow to its ability to attract capital and conduct trade. Or stronger European nations could feel compelled to bail out Greece, which would be an expensive undertaking and set a precedent for the bailout of other European states with a weak economy. Regardless of how this story unfolds, there will be no quick, happy ending.

Like all tragedies, this tale reminds the audience of its own vulnerabilities. If interest rates climb too far, too fast, and if the global economic recovery slows down, similar dramas could unfold elsewhere around the world.