Greece Making Huge Progress – Towards Committing Non-Lethal Suicide

Europe’s Policy Towards Greece Works as Forecasted But  Not as Intended

Non-Fatal Suicide (def):  A set of actions, policy decisions, strategies and positions taken by a business, regulatory agency or government which are so self-destructive that they would cause the demise of a lesser organization, but only inflicts huge but non-fatal harm to an organization that is strong enough to withstand the self-destructive behavior



Greece the Last Time Austerity Was Tried
in Order to Fix the Economy



The Dismal Political Economist wrote earlier about how the European policy towards Greece was a form of forcing the Greek economy to commit a version of non-fatal economic suicide.  The problem in Greece is that for years the country had borrowed money to finance a government spending deficit, without reforming the economy so that economic growth would allow the deficit to be reduced. 


So many European banks had purchased Greek debt that if Greek were allowed to default it could bring down the banking systems of Germany, France and a whole bunch of other countries.

Europe agreed to bailout the Greeks with a series of loans, but only if the Greek government implemented a massive austerity program of tax increases and government spending cuts.  The thinking, if that is what it can be called, was that this would enable Greece to cut its deficit and repay the European loans by borrowing again in the private markets.  The fallacy, to anyone with a C+ or better in Econ 101 was that this austerity program would so wreck the Greek economy that the fiscal situation would deteriorate rather than get better.

On May 20 The Dismal Political Economist  wrote

It was clear from the beginning that the so-called reforms were actually severe austerity that would cause the Greek economy to shrink, thus increasing its fiscal problems rather than ameliorating them.

Every day now brings news that this prophecy of doom is coming true.  From the Wall Street Journal we have.

Greek bonds fell sharply with two-year and five-year yields hitting euro-era highs as investors trained their guns back on the cash-strapped country amid signs of discord over a bailout package. . . . The two-year Greek bond yield rose by 2.64 percentage points to 45.92%, . . .%. The five-year yield rose by 0.83 percentage point to 28.56%, while the 10-year yield climbed by 0.16 percentage point to 17.54%.

Yes, you are reading that correctly.  Two year interest rates on Greek debt are 46%.

As far as the Greek economy is concerned, well here is how that is doing.

Greece is likely to miss its budget-deficit targets this year in the face of a deep economic contraction that is turning out to be even more severe than forecast, government officials said Thursday. . . Tax collection remains the main problem," one official said. "Many simply don't have the money to pay taxes. We have to get the economy going but the austerity is holding everything back."



Greeks Expressing Joy with
Their Economy



So what’s the next step.  More austerity.  Why?  Because when a plan is not working, continue with the plan. The forecast after more austerity.

One Northern European diplomat said it will come down to a political decision to give Greece more time and acknowledging that letting Greece default could devastate euro-zone financial markets.