Tuesday, June 21, 2011

Delusional Economics in Greece, and the Delusion Continues

A Disease That May Spread to the U.S.

In the Sunday New York Times we have the following article,

Struggling to Stoke Economic Growth in Greece

The bailout of Greece has proceeded under the assumption that if the country just cuts public spending and raises taxes, and returns its horrendous budget deficit to a surplus, the economy will grow and the country will be able to pay back European and IMF loans by borrowing again from the private debt market.  A second part of the solution is for Greece to reform its economy so that competition, investment by the private sector and a business friendly regulatory system   will make Greece competitive in both domestic and world markets.
While Greece is implementing the first part of the policy, it is not succeeding very much in the second part.  And the first part of the policy, far from helping things is making the economy weaker.  The economy is a disaster, no growth, high unemployment, a dissatisfied and discouraged business and labor class and while the deficit has been cut as a percent of GDP, it seems to make no difference.  More and more bailout money is needed for an indefinite period of time.  Of course, this is a surprise only to the European politicians who imposed austerity on Greece. The rest of the sane economics world predicted the actual problems that have occurred.
From the article we have
Almost no one in Athens believes International Monetary Fund forecasts that the Greek economy will grow 1.1 percent next year, after two years of the deepest recession of any country in Europe.
The lessons for the U. S.  – do not expect the austerity that will be forced on the U. S. economy by Conservatives who want a massive cut in government spending as the price for raising the debt ceiling to result in anything but lower growth than would have otherwise occurred.  And for our friends in England who have already started down this path, things don’t look so good there either for the immediate future.
Oh, and for Greece, this statement here is not entirely correct,
Under pressure from its European partners to meet the terms required to receive its next €12 billion, or $17.2 billion, installment of financial aid, Greece has little choice but to accept the requirement that it impose more austerity measures.
The Greek government and people could very well say, “Thanks for the money, but we have decided not to pay it back in Euro’s”.  Here is how.

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