Greek financial crisis reminiscent of Detroit's money struggles
We’ve seen the images of people lined up at ATMs, hoping to withdraw a few euros.
Crowds sang and celebrated after voting against the terms of a bailout by international creditors.
The Greek financial meltdown has grabbed the attention of the world, and a pullout from the European Union could destabilize the world's financial markets.
Detroit News business columnist Daniel Howes tells us that what’s happening in Greece is strikingly similar to what happened in Detroit and Wayne County.
The details are easy to distinguish, he admits, but in each situation leaders made promises they couldn’t keep, and they made those promises on borrowed money.
“You can argue about the fact that lenders shouldn’t have lent the money, but the fact of the matter is lenders are in the business to make money,” he says.
A factor that Howes says has largely contributed to Greece’s current financial situation is its long history of massive tax evasion, and here he draws another parallel to Detroit.
Howes says a Detroit News report a couple of years ago found that nearly half of the people living in Detroit weren’t paying property taxes.
“That was like … $250 or $270 million a year that was going uncollected in the city of Detroit,” he says. “Had people been actually paying their taxes, like a lot of people do, then things might have been different.”
Howes says there is no easy way out of the situation, especially for a whole nation.
Detroit went through the Chapter 9 bankruptcy process, and after 16 months emerged with a much better financial footing. According to Howes, Greece doesn’t have such a simple, standardized option.
“Greece is a whole different ballgame,” he says. “And it’s one thing for the Greeks to defy the Germans and the French; it’s another to look at what the implications are down the road.”
Howes tells us that one of the main concerns in Europe is that if some of the greater financial powers agree to write down some of the debt for Greece, it will encourage countries like Spain, Italy, and Portugal, whose debts are all greater than that held by Greece, to seek the same treatment.
As it stands, Howes says that Greece's situation alone shouldn't have a catastrophic impact on Europe's financial landscape.
But should such a chain reaction begin, he says the effect on the European financial sector could be devastating, and the damage could be seen here in the States as well.
“It’s all kinda one big ecosystem,” Howes says.
Daniel Howes tells us more about the Greek financial crisis in our interview above.