Thursday, February 9, 2012

Since High Unemployment Plagues Greece - Government Implements Policy to Fire 15,000 Government Employees

How Exactly is That Supposed to Help?

Greece is having to be bailed out, again.  And Europe does not have a whole lot of choice in the matter, since non Greek banks hold a lot of Greek debt, debt that is essentially worthless unless Europe bails out Greece, again.

What Europe would like is for the Greek economy to grow, and for the Greek government to balance its budget so that it can start borrowing from private banks.  But that is not going to happen.

Some economists argue that the dislocation in Greece shows that austerity is precisely the wrong medicine for the struggling economy. Shrinking the G.D.P. side of the equation makes it harder to bring down Greece’s debt ratio to a more sustainable level, as the country has pledged to do, and adds pressure for additional taxes and spending cuts.

Two years of spending cutbacks have weighed on employment, with the jobless rate at 19 percent, and have lowered government tax revenue. The economy is expected to contract 6 percent in 2011, the International Monetary Fund has estimated.

So Europe is going to have to pony up or else bad things happen

Athens is racing to push through economic changes that will persuade its lenders to release €130 billion, or $170.5 billion, in new bailout funds to avoid defaulting on its bond payments in March.

So about the only thing the Europeans can do is to get some satisfaction out of all of this, by making things worse.

Greece will cut 15,000 state jobs this year, the government announced Monday, part of new austerity measures it must agree on to secure new debt agreements and rescue funds from international lenders.

Of course, that only means that sooner rather than later Greece will be back to the Europeans with hat in hand asking for another bailout, and another and another.  But at least the bailout providers can bask in the satisfaction that they have just put 15,000 people out of work.  Of course, given the safety net in Greece with unemployment support and other programs, other than creating more joblessness it is hard to see how firing 15,000 people will help Greece's fiscal situation, at least in the short term.

Nice going Europe.

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