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poor Greece « Previous | |Next »
February 12, 2012

Poor Greece. The imposed harsh austerity--- wage and pension cuts, tax rises and cost-cutting reforms--- is pushing Greece towards economic and rebellion and a trajectory to collapse. Greece is smouldering.

Without the new bailout, Greece will be unable to redeem more than €14bn of debt on 20 March, leaving the country in sovereign default and ushering in an even bigger crisis in the eurozone's distressed periphery. Default on its debt next month may well mean that Greece would be forced out of the euro.

The price of the "troika" of European Commission, ECB, and IMF officials €130bn rescue package includes €300m in pension cuts, an additional cut of 150,000 government jobs by 2015 and a 22% reduction in the minimum wage from about €750 a month. The bailout now on the table also involves a partial default to private sector creditors such as banks. The bond market investors take a haircut.

RowsonMGreece.jpg Martin Rowson, Greek crisis

The aim of the second Greek bailout in two years is to cut the country's debt from 160% of gross domestic product now to 120% by 2020. That still amounts to insolvency. A debt level of 60-80 per cent of GDP by 2020 – is probably the most that a weak economy like Greece could cope with. Greece's hands are tied, since it cannot devalue its currency because it uses the euro.

As there is no mechanism to allow growth, how can the Greeks service their debt, even with the reduced debt burden? The deficit reduction won’t come when you deflate a rapidly declining economy into the ground. Nor is it simply a loss of wealth and income or lesser income/social mobility. It also means a health care crisis: severe cutbacks in hospital staffing, which in turn means greater infections in hospitals and more people dying in hospitals. Third world status is the result of the endless cycle of austerity and bailouts designed to salvage the debt-ladened country.

Greece will not be able to squeeze more revenue out of an economy that is in its fourth year of recession. The problem for Greece with respect to economic growth is that the country doesn’t make a lot of products to export It makes feta cheese and olive oil, and it has tourism. So it needs to devalue--become much cheaper than than Spain, Italy and Portugal. It can do this if it leaves the euro and go back to its local currency.

The problem is that whilst Greece is teetering on the edge of economic collapse it is also on the brink of becoming ungovernable and its institutions barely functioning. The central government is not capable of designing and implementing the growth-boosting reforms that Greece desperately needs. Its public administration is dysfunctional.

| Posted by Gary Sauer-Thompson at 9:58 PM | | Comments (9)


The situation in Greece is bad.

Without the bailout – the second in two years – bankrupt Greece will be insolvent and have to default on its debt next month when it needs to redeem €14.5bn of loans.

They cannot pay off their debt. So they borrow to repay their loans.

Here is Ambrose Evans-Pritchard on what is happening already in Greece (and the new round of cuts hasn't been implemented yet):

"...some of you will have seen that Greece’s tax revenue from VAT collapsed by 18.7pc in January from a year earlier.

"Nobody can seriously blame tax evasion for this. It has happened because 60,000 small firms and family businesses have gone bankrupt since the summer.

"The VAT rate for food and drink rose from 13pc to 23pc in September to comply with EU-IMF Troika demands. The revenue effect has been overwhelmed by the contraction of the economy.

"Overall tax receipts fell 7pc year-on-year".

riots in Greece.

"The aim of the second Greek bailout in two years is to cut the country's debt from 160% of gross domestic product now to 120% by 2020."

The Greek debt-to-gross domestic product ratio would have to come down to a much lower level – something like 60 per cent of GDP – before the country has a chance to escape from the crisis.

Greece is bust.

"As there is no mechanism to allow growth, how can the Greeks service their debt, even with the reduced debt burden?"

how you can have austerity programs and growth programs at the same time?

The Greeks can't pay off the debts they have incurred.--eg., the €14.5bn bond payment due on 20 March. There is massive unemployment, falling industrial production; small businesses are closing; consumer confidence is rock bottom.

They are going to experience a Great Depression. The Greek people have little hope apart from protest and social unrest.

Greece could be a neo-liberal showcase for “expansionary austerity:”--- the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth.

The Greek economy will thrive when unemployment is high, and government policies and directly reducing employment even further because of confidence. Austerity policies are confidence-inspiring policies because they are premised on the radical rollback of the welfare state.

Actually, this cartoon resonates well with the following thread, concerning the CIS and corporatism.