Tuesday, January 17, 2012

While Americans Are Obsessing Over Bain Capital of 20 Years Ago, the First Domino in Europe is Getting Ready to Fall

Economic Policy Imposed on Greece Has Just About Succeeded – In Destroying the Economy

Homeless people at a New Year's meal in Athens.
Poverty is visibly growing in the capital, but
 European officials say Greece still has not put
 into effect needed austerity measures.
 For the past year economists who actually understand economics and base their economic analysis on facts, logic and reason, (like this one) as opposed to political ideology have commented that the program of austerity imposed upon the people of Greece will produce a disaster of an economy.  As 2012 moves ahead that forecast is becoming more and more evident.

Greece’s dire economic condition can hardly be overstated. After two years of tax increases and wage cuts, Greek civil servants have seen their income shrink by 40 percent since 2010, and private-sector workers have suffered as well. More than $75 billion has left the country as people move their savings abroad. Some 68,000 businesses closed in 2010, and another 53,000 — out of 300,000 still active — are said to be close to bankruptcy, according to a report issued in the fall by the Greek Co-Federation of Chambers of Commerce.

“It’s an implosion — it’s an endless sequence of implosions from bad to worse, to worse, to worse,” said Yanis Varoufakis, an economics professor at the University of Athens and commentator on the Greek economy. “There’s nothing to stop the Greek economy losing 60 percent of its G.D.P., given the path it is at.”

Wow, how can that have happened?  Easy, it was the result of deliberate policy designed to do exactly what it has done, it is just that those whose economics is based on faith rather than logic were unaware of it, or maybe they just didn’t care.

Greece is attempting to default on its debts, without defaulting on its debts because a default that everyone recognizes as a default would have all sorts of bad results on the rest of the world.  So they want to have a "voluntary" default where the holders of Greek debt, out of the goodness of their hearts, agree to not require Greece to pay, oh, say 50% of what they are owed.

The markets have taken into account a voluntary default by Greece, most experts say. But financial experts fear the possibility of an “involuntary” default if the negotiators are unable to reach an agreement. That could unleash violent market reactions that could conceivably produce another market cataclysm like the 2008 bankruptcy of Lehman Brothers and throw the world into another recession.

So what is everyone doing now?

Officials from the so-called troika of foreign lenders to Greece — theEuropean Central BankEuropean Union and International Monetary Fund — have come to believe that the country has neither the ability nor the will to carry out the broad economic reforms it has promised in exchange for aid, people familiar with the talks say, and they say they are even prepared to withhold the next installment of aid in March.

And what are the prospects for the future?

About a year ago, after missing earlier fiscal targets, Greece promised to sell off $65 billion in state assets as a condition for receiving emergency loans. So far, though, it has sold only about $2 billion worth, because of domestic opposition and a reluctance to part with assets at what the government says are fire-sale prices.

The country also pledged to lay off public-sector workers, overhaul tax collection, and make its economy more competitive. But it has fallen short in those areas as well. A law passed in the fall called for cutting 30,000 public jobs by shifting workers into a labor reserve at much lower pay, but only 1,000 workers have been so assigned.

Adding to the sense of déjà vu, last week, the Greek Parliament began debating a bill that would streamline some state entities and open the professional associations governing lawyers and truck drivers, among others — measures it passed in 2010 but never put into effect.

Now in Europe Italy, Spain and Portugal are following the policy lead of Greece.  Anybody want to take a guess where that path leads to? Anybody??

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