Greek myths and legends and lessons about debt.

Dubai, favourite holiday spot for our most rich and spoilt and vulgar, turns out to be everything its sternest critics ever said about it. Best summed up as ‘castles built on sand’.

There was a general rush for the smelling salts when Dubai’s leading property company declared a debt default. Some major European banks (not ours, thankfully, so far as we know yet), already in trouble, might be exposed as in even deeper trouble, sparking a fresh financial jolt around the globe. As the crisis rumbles on, those who borrowed or lent profligately, back when money was no object, are casting a nervous eye on the calendar on the wall and those dates, circled in red ink, when debt redemption falls due. If Dubai might unravel, then who might be next? It’s all about debt now, they say.

Switch to Greece, and murmurs that the EU may not continue to bail out countries, even eurozone members, who make no effort to curb their public finance deficits.

Now Greece is of interest to us. We’re both in the eurozone. We’re both piling up unsustainable levels of debt. We’re both judged equally risky, likely as not to fall off the edge and default, especially if global conditions took another turn for the worse. That’s why we pay similarly excessive rates on borrowings for our day to day public spending.

There are differences: Greece is barely in recession. Recently, its Prime Minister rejected a European Commission forecast of zero growth next year. Greece will grow by 1.5%, George Papandreou insisted, even as Greek tourism is down by an estimated 20% this year and its shipping interests have fallen victim to the 12% decline in world trade.

Like us, Greece has bank problems, but different ones, most of whose chickens have yet to come fully home to roost. During those golden years of credit aplenty, Greece’s main banks spread their wings into Macedonia, Albania and Bulgaria and further afield to Turkey, Ukraine and Russia. On foot of these foreign adventures, they now have an estimated exposure of €55bn.

The Greek government itself was known to occasionally tweak the economic data it presented to the EU under the Stability and Growth Pact. Indeed, there are those who believe the Greeks have no real idea of the exact magnitude of their public finance deficit, any more than anyone else has.

But the killer problem for Greece arises from its national debt, estimated to reach 96% to the country’s GDP ratio this year, if not 100%. In the Budget they’re currently steering through Parliament, the new Greek government plan to borrow an additional €31bn euro next year, plus €16bn that they need to cover repayments on existing debt. Borrowings to stay afloat in 2009 are expected to reach €43.7bn, or €1.7bn ahead of projections at the beginning of the year.

The unpopular New Democracy administration of Costas Karamanlis called a snap election for October last, even though no election was due until 2011. The New Democracy government was unpopular because of its failure to deal adequately with the Athens forest fires of 2008 plus some well publicised corruption scandals during its term of office.

But it wanted a mandate to do something about the mounting debt, the government said, before the debt did for the country. In March last it had taken the deeply unpopular step of freezing public sector pay. To get things back on track it proposed privatising more State assets, bringing some order to the shipping industry, introducing new labour flexibility measures and sorting out the pensions system.

The opposition socialist party, Pasok, campaigned on a platform of creating a new Green industry economy in Greece; after they’d sorted out the deficit problem, mainly by stimulus measures. Promises included raising taxes on the rich and eliminating tax loopholes that favoured them; introducing a programme of debt relief for SMEs and individuals; increasing public sector pay and pensions as part of the overall ‘stimulus’ approach; investing €1bn in education and hiring an extra 3,000 nurses to improve the health service.

Not unexpectedly, Karamanlis’ Conservatives were routed and the Socialists won. Key features of their first Budget in office include tackling tax evasion, increasing taxes on the rich and so on, in line with their successful election manifesto. The spending cuts that the EU, and other lenders, wanted to see are not part of the formula.

So the prediction is that the EU will demand that Greece introduce a supplementary Budget that makes provision for cuts in public spending. The Greek government will refuse. The EU will then crank up the pressure. After that it’s anyone’s guess: the EU will either blink or Greece will be headed straight for the arms of the IMF.

Our economic situation may be worse, but our debt problem is not nearly so bad as Greece; at least not for the present anyway. But there a couple of things about events in Greece that might give us pause for thought in the run-up to showtime on December 9th, this day week..

The first is that if you want to keep borrowing money on the international markets, and you want the EU to keep supporting that bail-out, then you need to seriously tackle your public finances deficit and be seen to do so.

Second, beware of politicians promising fantasy jobs based on fanciful plans for a Green-based revolution or a ‘smart green economy’. It may never happen, and even if it may happen it will take time and a lot more time than those proposing it will suggest. In the meantime, ever widening deficits will make poor foundations for it.

Beware too of vocal interest groups with their own well-packaged ‘stimulus’ proposals that promise to lift us out of our difficulties but that really just amount to their members sidestepping the pain at someone else’s expense.

Most of all, insist that those we have elected, of any party or none, deal squarely and honestly with what lies in front of us. Demand that they work in our interests; cut the cheap blame-games and the jockeying for power at which they excel, and get on with the job they’re paid to do.