A Greek tragedy?

April 30, 2010, 12:33 a.m.

Last week, amid financial turmoil, Greek Prime Minister George A. Pompandreou requested an international bailout to rescue his country’s faltering economy.

A Greek tragedy?
(ANASTASIA YEE/The Stanford Daily)

On Tuesday, Greece’s credit was downgraded to junk status by a leading ratings agency.  Public sector workers—who generate 40 percent of GDP—demonstrated in Athens after the Greek parliament proposed pay cuts for government employees. The crisis has strained the relationship between Greece and the European Union.

Yet despite Greece’s economic woes, Stanford’s roughly 36 Greek students remain largely unaffected by the crisis.

All but four of Stanford’s 36 Greek students are graduate students.  Most either receive financial support from the university or come from relatively affluent families able to pay Stanford tuition.

Penytina Dimitropoulou, a first-year masters student in management science and engineering from Athens, says that her parents are not likely to be impacted by the crisis, despite working in the public sector. Her mother is an electrical engineer and her father is a professor.

“They have high salaries for the public sector so they’re not so directly influenced by the situation,” said Dimitropoulou.

But the crisis will likely have a larger impact on the family of George Roumpos, a sixth-year graduate student in physics, whose father, mother and sister all work in the public sector.

“Their salaries are going to be reduced,” said Roumpos.

Roumpos, originally from the northern city of Kavala, says he had decided before the crisis not to return to Greece after finishing his PhD.

“To be honest, I had already made the decision not to go back, if I can find a good job here or somewhere else,” said Roumpos.  “But probably that’s going to make things easier, I mean, talking to my parents.  You know, I have a better argument now.”

Despite the fact that Roumpos’s family would be hurt by the pay cuts and increase in retirement age for public-sector workers proposed by the Greek parliament, he pointed out that these measures were necessary.

“These are the first measures that they can take, but then probably that’s not going to be enough,” he said.

Dimitropoulou agreed that salary cuts were necessary.  “It’s the only way,” she said.

Despite the demonstrations that have taken place, Dimitropoulou thought the majority of Greeks supported the cost-saving measures proposed by the Greek parliament.

Roumpos, however, emphasized that systemic problems with the Greek economy were to blame for the crisis.

“So many people work for the public sector and there are not so many new companies producing new stuff like here in the Bay Area,” Roumpos added.  “It’s kind of an outdated economic model.  Greece doesn’t produce much.”

Stanford economics professor Monika Piazzesi pointed out that the Greek government is stuck in a bit of a political quagmire.

“The government has run fiscal deficits for a long time, and the way they have done this is that they pay high salaries to the government employees and they have not reduced pensions to government employees,” she said.  “Whenever the government announces some kind of a cutback they’re facing big protests and strikes.  And so they’re in a somewhat weak bargaining position with their own constituencies.”

Piazzesi emphasized the moral hazard that the European bailout of Greece will create.

“If the European Union is bailing out Greece, why shouldn’t they also bail out Portugal and Ireland?” she argued.  “Why should these governments have any savings plans?  Why should they do unpopular measures, measures that are clearly unpopular with their people?”

If states come to expect a bailout, she continued, there would be no reason for them to take already unpopular steps to reduce their deficits.

“It’s bad, it’s going to create all kinds of incentive problems,” she said.

Although the Greek debt crisis has yet to impact Penytina Dimitropoulou’s family directly, it has affected her plans for next year.

“My initial plan was to go back to Greece in September,” she said.  “Now I will extend my studies until December in order to have time to look for a job here in the fall quarter.”

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