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19 Feb, 2010 07:10

Greek crisis may just be beginning for Europe

Economists say German tax payers will bear the cost of the Greek debt crisis despite opinion polls showing most Germans oppose it, as the risk of default grows in other countries.

Bankers are the latest to attract blame for the crisis in Greece. German Chancellor Angela Merkel criticised investment banks that helped the Greece to hide its debt. Greek borrowing exploded this year as the financial crisis hit tax revenues and pushed up social costs.

It's expected to reach 120% of GDP this year – putting the Eurozone under pressure to organise a bailout. Renaissance Chief Economist, Aleksey Moiseev says Germany is likely to bear the brunt.

“Certain historical rememberances of WW1, WW2, so Germany always pays and that not only has political connotations but economic, that Germany is the largest European economy. What could be done, is there is an additional contribution arranged to the European budget in a way that Germany would bear the biggest part of it.”

Analysts say, only sheer embarrassment is likely to stop the EU turning to the International Monetary Fund. Greece has also turned on its bankers – but the crisis in Athens has older foundations says Aleksandr Apokin from the Centre for Macroeconomic Studies.

“Greece has a complex tax system that actually collects little tax and it was also steadily increasing its social welfare and salaries just to bring them in line with western standards.”

But many countries, within the eurozone and outside, are also spending beyond their means. Long lives are sadly a part of the problem.

Aleksey Moiseev, say Russia needs to reconsider its newly reformed pension system – to avoid a Greek tragedy.

“Financially, the deficit of the pension fund has become horrendous and has now been principally covered by budget transfers and that’s the principal problem as the population, life expectancy start to increase. And that is clearly we are seeing the same problem that the United States and other countries have, and there is going to be something happening to the pension situation."

At the moment there is little public or political will to cut social spending. Analysts say austerity measures are inevitable when governments admit their comedy of errors.