Some time in the future, from our shores, we might watch the awful sight of Greece sinking under the waves.

Over the past weeks, as the whole extent of the Greek financial crisis unfolded, at each and every point there was an optimistic view and a pessimistic one. At each turn, the pessimistic view turned out to be correct.

At first, as all remember, Greece tried to bluff her way through. Elections were coming and the centre-right government wanted to portray everything as being hunky-dory. It lost the elections, however, and the new, socialist, government soon discovered that it had been left a very toxic inheritance. Even so, hope springs eternal and the new government, which had been elected with promises of more bounty for the citizens, soon realised that instead it was being asked to impose strict austerity measures.

Even so, other countries were, at that point, portrayed as being in a worse situation – Iceland in primis, where there was a huge banking collapse. Then countries such as Ireland, Hungary, which in September 2008 were considered as a whisker away from total collapse.

But even as many countries, especially the Baltic States, Ireland and Hungary, imposed huge burdens on themselves, Greece and Spain continued to turn a Nelson’s eye to the whole thing. Latvia, in particular, imposed on itself savage cuts that would seem unthinkable in any democracy. So did Ireland, though in a minor key. Although they are not out of the woods so far, the outlook for them has improved no end.

Spain was rather late to understand what was happening. And then even Portugal began suffering from stress. But Greece emerged as the worst country in the whole eurozone.

Greece is swamped by €300 billion of debt and needs to borrow about €54 billion this year alone. Athens has been raising money, but at increasingly higher interest rates demanded by investors.

On Thursday, new data from Greece showed a budget deficit gap of 13.6 per cent of gross domestic product, not the 12.7 per cent first reported. Eurostat, which was given new data by Greece, said doubts over the figures meant they could be revised again. The 2009 public debt amounted to a colossal 115.1 per cent of GDP, up sharply from 99.2 per cent in 2008.

The credit rating agency Moody’s also cut its rating on Greek debt and warned that there could be more downgrades. Moody’s cut its rating on Greek sovereign debt to A3 from A2, saying that there was “a significant risk that debt may only stabilise at a higher and more costly level than previously estimated”.

On Friday, Greece asked for an EU-IMF bailout of its debt-ridden economy. It requested for emergency loans totalling €40 billion in the first year. Nations using the euro would contribute €30 billion with the rest coming from the IMF.

No eurozone member-state has suffered such a humiliation since the euro’s launch in January 1999. But Greek Prime Minister Papandreou must have feared, as soon as he took office after last October’s election, that emergency foreign assistance was going to be necessary.

There are two issues here.

First, although both the IMF and the eurozone members have agreed on the bailout package, there are still hurdles to overcome. As I write, a Greek government delegation is in Washington to negotiate with the IMF.

As for the eurozone countries, there may be unsuspected pitfalls ahead. No pitfalls surely from our country whose government has so far not deemed it fit to tell its citizens how much will be loaned to Greece according to the Brussels summit agreement. But maybe the German government, with a crucial state election coming up in just two weeks’ time, will be checked by a challenge to the Constitutional Court as regards the bailout.

Certainly, there is huge public outcry in Germany against helping the Greeks, but so far all the parties represented in the Berlin Parliament are in agreement on the bailout so the public outcry is only reflected in the tabloids but not politically.

But the real question now is: will the bailout work? Here the opinion of experts is starting to falter.

Hear Wolfgang Munchau in last Monday’s Financial Times: “The bailout prevents a default this year, but makes no difference whatsoever to the likelihood of a subsequent default. Just do the maths. Greece has a debt-to-gross domestic product ratio of 125 per cent. Greece needs to raise around €50 billion in finance for each of the next five years to roll over existing debt and pay interest. That adds up to approximately €250 billion, or almost 100 per cent of the Greek annual GDP.

“To avoid long-run insolvency, Greece will need to find a way to stabilize the debt-to-GDP ratio. This would in turn require a multi-annual deficit reduction plan and a programme of structural reforms to raise the potential growth rate. The Greek government has so far presented a one-year plan to cut the deficit from 13 per cent of GDP to about 8.5 per cent. While this sounds ambitious, it is not very credible, as it is based heavily on tax increases with no structural reform.”

And, as we now know, since this was written, Eurostat found that the actual situation of Greece is worse than previously thought. Hence the remedy must be harder.

Up to a point last week, the optimists were saying that they were heartened by the fact that the Greek public seemed to have understood the need for reforms and there was no real public outcry or riots. By Friday, that seemed to change for the worse. It is all entirely understandable: this was a government elected on promises of further social measures and wage increases.

Other than that, the worst-case scenarios are only whispered among the experts, as they are all too terrible to be spelt out in public. Let it be made clear: it is not a case of the rest of us standing watching as Greece sinks below the waves. A Greek default will pull the rest of the eurozone with it: no wonder that Italy’s Giulio Tremonti warned Germany’s Angela Merkel that when a neighbour’s house catches fire, all must rally around and help.

Nor is it really a solution to kick Greece back to the drachma, in other words kick it out of the eurozone. First of all, it is one thing, as we have seen, to change the currency of a country when this is planned and laid out, and quite another thing to revert to a national currency in the midst of a crisis. There are already huge concerns regarding currency outflows, which will increase exponentially if the currency in use is not the supra-national euro but the national drachma.

This is the first huge crisis the euro has had to face and it has revealed that there are deep fault-lines in its composition, which were unsuspected as long as everything was well. The countries in the eurozone must go back to the drawing board and see where corrective action at strategic level must be taken. The euro-template, which we all thought had the tools to tackle issues such as huge deficits and the like, now finds that the toolbox is empty.

On a country-by-country basis, the only solution, for Greece, for any other country, for us too, is for each member state to come to grips with its finances and to own the right corrective measures to tackle the slide to deficits and debts. That is what Latvia, at a huge cost, and Ireland, did. That is what the Greeks, so far, have not done.

So when the Governor of the Central Bank of Malta was going on, as he did last week, about the value of what is being called ‘peer surveillance’ as the new eurozone panacea to solve everything (in other words, that each member state will now oversee each other’s figures and budget policy), he was in actual fact rather like clinging to a straw in rough seas.

It has been proved, over and over again, that membership in a continental currency like the euro undermines the competitiveness of small member states and reinforces that of the big state, in this case Germany. In fact, had Greece not been a member of the eurozone, it could well have been well on its way to saving itself by now. But since it was in a bad state, the eurozone pressure against competitiveness contributed to pulling it further down.

Therefore the Governor was more correct when once again he argued and pleaded for more action to make Malta more and more competitive. What he had to say made a lot of sense, as usual. Malta’s figures are not right: Malta is following the Greek pattern, though obviously not on the same scale. Our wages have outpaced our productivity. We have deluded ourselves that we are richer than we actually are, just like the Spanish and the Greeks. Our social spend is coming from the money the government regularly has to borrow.

This does not mean that the crux of the problem is COLA, although yes, that is an essential part. More than COLA it is the whole approach to public finances that is still not right. We may not be Greece and our situation is far from that of Greece, but it was from similar short-sightedness that the Greek tragedy evolved.

Much has been done in recent years, as more sections of our manufacturing changed to more value-added streams, as more financial services came in, as more of our young emerged from school with higher qualifications.

But there is still so much to do until the figures are right. Bringing the deficit figures under control is only part of the story (and pleasing Brussels is not the whole story either). What matters is competitiveness and recent years have seen us sliding down on this all-important benchmark. There are international benchmarks for competitiveness, as well as simple, plain figures to watch. In the end, what matters is what kind of reasoning would persuade a company, an entrepreneur to relocate to Malta, what kind of incentives could bring them here, what kind of disincentives would push them away.

Without in any way wishing the Greeks any harm, the events of the next months should serve as a warning to us: we either pull up our socks or else we go that way. It is so easy to find yourself on a sliding road to hell.

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