Greek Austerity is doomed to failure....

edinburgher

Driving down wages might work for certain sectors of the Greek employment market, but (as is always the case), those at the bottom are already hurting.

I believe BBC News was quoting 47.2% youth unempolyment? Pretty much puts the riots over the changes/loss of EMA in perspective, doesn't it?

It's all too easy to see why Greek youths (half of who are unemployed) feel like rioting when they realise that they each owe tens of thousands of Euros for debts accrued by others while they were still at school.

Generali

HAMISH_MCTAVISH wrote: »

Punitive austerity is a choice, because the Greeks are accepting punitive interest rates on their debt.

The Greeks should present the EU with a choice of their own.

Refinance all our debt at competitive rates and provide fiscal stimulus to stimulate growth, or we default on all our debt and leave the Euro.

The current path is doomed to failure.*

About time the debtor nations grew a spine, and remind the creditor nations just how f*cked their own economies will be in the event of a full default or someone else taking on the debt.




*The reason it's doomed to failure is because the forced austerity and "risk premium" demanded by the bailouts and markets is a step too far. Yes, of course Greece needs to reduce spending and collect more taxes. But austerity to the point of economic destruction (as we're seeing in Greece) widens the gap between revenue and spending instead of narrowing it. And the "risk premium" demanded by the markets and banks only guarantees failure, and increases the risk of default.

Ok, so the market reckons the yield on Greek debt should be of the order of 15-25% so the subsidy given by the rest of the Europeans (including likely default candidates such as Ireland and Portugal) is already huge.

Even if the German Government was to swap all Greek debt into 10 year buxl at the rates the German Government pays to borrow, ie 3%, the interest cost alone would be 10% of Government spending which would mean a deficit of 8% of GDP or to put it another way the Greek Government would be spending about 30% more than it takes in taxes. To start to repay the debt in any sort of meaningful way would mean cuts in spending of about 40%.

The problem in Greece isn't one of liquidity, it's one of solvency. The debt is so huge in combination with the overspend that the only genuine option is default.

Mr_Mumble

HAMISH_MCTAVISH wrote: »

Austerity was never going to work. Not in Greece, not in Ireland, and not in any other country.

Growth is the only sustainable way out.....

Britain had austerity post-WWII, it worked, Britain had mediocre growth during this period and was easily outpaced by the likes of Germany, Japan and the US.

Austerity works whenever there's a floating exchange rate that is why it is IMF policy. The only reason Britain isn't the basketcase that is Ireland right now is because we have our own currency. A currency that has been devalued by 25% on a trade-weighted basis.

You can't wish up "growth". For countries like Greece, where the state is involved in 70% of all trade, you need to be austere with the power infrastructures that have led to the situation in the first place.

HAMISH_MCTAVISH wrote: »

Then the Germans etc should prepare for their banks to become insolvent as Greece defaults and triggers a contagion that spreads throughout the Eurozone.

Greek default really shouldn't be such a big deal. The French & German banks are playing up these scenarios because they want a fiscal transfer from taxpayers to themselves. For me its telling that foreign governments are trying to shore up Greece and not their own banks, if their own banks were in real trouble they'd abandon the outer perimeter of Greece and fortify their own. Perhaps I'm underplaying the ludicrous lengths Merkel and Sarkosy would go to protect a 17 member Eurozone and the "ever closer" Europe.

When externally enforced austerity and punitive interest rates drive an economy into the ground, as is happening with Greece, it's time for the creditor nations to start worrying about the return of their capital rather than the return on their capital. Only then will they learn the lesson that growth is the only solution, and you can't cut your way out of a recession.

Austerity isn't enforced, the only alternative option is even greater austerity if they defaulted. Greece is running a primary deficit so they can renege on all their debt and they'd still need to cut harder to remain solvent!

Interest rates are not punitive. The Greek government is being subsidised, to a ridiculous degree, by other European governments who're offering loans at 5.5%. Spain is having to issue 10yr bonds yielding 5.5% right now!

Outside of the very-short term paper all Greek government bonds are trading at silly yields because nobody expects the full repayment of the principal. Three year debt is trading at 55 cents on the Euro!

mumbles_one

Why not set up an International Lottery so that governments can buy lottery tickets and the winner gets all their national debts cleared. It works with the National Lottery and seems to make a profit and gives loads to charity. It even works during a recession.
Or is that the same idea as the Olympic games???

The problem with any idea is that it is difficult to test it and compare it to the result of doing nothing.

What we need is another world economy exactly the same as ours that we can carry out any ideas and see if they work.

So the outlook is irrelevant. Nothing we can do changes anything. But its fun to try. In 50 years it won't matter anyway.

Hindsight is the only exact science

edinburgher

Why not set up an International Lottery so that governments can buy lottery tickets and the winner gets all their national debts cleared. It works with the National Lottery and seems to make a profit and gives loads to charity. It even works during a recession.
Or is that the same idea as the Olympic games???

To be honest, I think hosting the Olympic Games helped to get Greece into this mess

mumbles_one

edinburgher wrote: »

To be honest, I think hosting the Olympic Games helped to get Greece into this mess

Good news then . Four years from now its China's turn and then..... oh that can't be right.

mumbles_one

Trying to predict the future of the world economy is like trying to predict the outcome at Wimbledon.
It doesn't matter what the "experts" say because you only find out who wins AFTER the last day. So looking back at what the experts said is a waste of time because hindsight tells us only that the winner became the winner by beating the losers and by no other means. So it doesn't matter what we do as the outcome is only decided at the end of the game. Our opinions are as good as the experts but still no use. Making others lose is the only way to win. So we need countries to fail.............I don't like it but there is no other way. If everyone picked the winning lottery numbers the payout would be less than the £1 stake but the national lottery would still make a profit

vivatifosi

alisonmeyers wrote: »

vivatifosi i read that article too and wondered how much truth (or stretching of it, since it's the DM) there was.

can anyone comment / expand upon it, based on their own experiences or the experiences of relatives / friends?

just how much truth is there to some of the (quite unbelievable) claims made in that article, I wonder?

Hi Alison, fair points. I've got greek friends but they are Cypriot rather than from Greece itself, so without a direct commentary from source I've been ferreting around for more secondary information:

vivatifosi wrote: »

* The Athens Underground, built for the Olympics, has no barriers to entry or exit and works on a ticket validation system which few bother with.

Fare evasion is on the rise due to financial problems but runs at 20-25% on the metro according to this article:

http://www.neoskosmos.com/news/en/greece-rise-fare-evasion

* The average salary on Greek Railways is £60k.

There do appear to be huge salaries on the Greek Railways - 8758 euros per month in some instances according to this article, however it is from last year so may already be being addressed:

http://www.grreporter.info/en/%E2%82%AC_8758_average_salary_athenian_electric_railway_company_deficit_which_%E2%82%AC_250_million/3736


* 600 professions including pastry chefs are allowed to retire at 50, on 95% of their previous salaries, due to the arduous nature of their work.

At least 580 job categories accrording to the NY Times, 14% of the workforce.

http://www.nytimes.com/2010/03/12/business/global/12pension.html

* Only 5,000 people in the country admit to receiving a salary of over £90k pa due to self-declaration of taxes.

Can't find an article to substantiate that, but could find one in the FT to show the majority of powerboat owners had been declaring incomes below 40,000 Euros, an amount that would barely cover the fuel cost of running them:

http://www.ft.com/cms/s/0/28d3afd4-adff-11df-bb55-00144feabdc0.html#axzz1QhWM3ynq

* This is in spite of "studies" (unnamed) showing more than 60,000 greek homes have investments of over £1m.

* People are therefore saying they earn below the tax threshhold of £10k, even though they own second homes and boats.

See above, also:
'Greece’s revenue from income tax was 4.7 percent of GDP in 2007, compared with an EU average of 8 percent'

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apSz28ifLL9U

* Allegedly there is a semi-official rate for bribing the tax collector if they find out.

Bribery is widespread and sometimes needed just to get on according to Spiegel online international version:

http://www.spiegel.de/international/europe/0,1518,682030-2,00.html

* Greek shipping magnates are automatically exempt from tax.

Couldn't find anything to substantiate this though it appears to be a widespread rumour among Greek people. If anything the government appears to be moving to further regulate the industry and its wealthy magnates are moving elsewhere like London (which may explain a couple of the points below).

* The government has resorted to using helicopters and Google earth to show where people add swimming pools and expensive extras to their property. People are using covers and camouflage to hide them.

This was also in the NY Times last year:

http://www.nytimes.com/2011/02/21/world/europe/21greece.html?_r=1&pagewanted=2

* There is a big capital flight to tax havens (well that one must be true!)

* Greeks have been buying properties in London to hide their wealth.

* Greek schools have four times as many teachers as Finnish schools - the system rated best in Europe.

Unless this has changed recently, this is untrue:
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Pupil-teacher_ratio_in_primary,_lower_and_upper_secondary_education_%281%29_%28average_number_of_pupils_per_teacher%29.png&filetimestamp=20101210175242

alisonmeyers

vivatifosi, some good digging around in that case!!

Personally I find the retirement at 50 thing most surprising - radio presenters and hairdressers retiring on 95% of their last year's salary at their 50th birthday ..?!

ILW

I would suspect that the majority of the protestors think others taxes should be increased, but not their own.