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Mutiny on Papademos’ Greek Ship of State

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The situation In Athens is becoming ever more critical. The deal to restructure Greece’s debt is hanging on by its fingernails as the government under Prime Minister Lucas Papademos struggles to convince the lawmakers and the general public that EU imposed austerity is the best option for staving off a default. Previous measures taken by Greece in exchange for rescue funds have cost it much of its economic prosperity, as unemployment continues to rise and opportunities for growth are hedged by increased layoffs in the public and private sector. With the latest rescue package demanding further cuts and outright layoffs, time is short for Papademos as seeds of dissent begin to find accommodating soil, leaving some to question if the relief package is enough to aid the nation’s ailing economy. Whether from its lateness or intent, it’s more than clear that the $170 billion relief package will not be enough to play a significant role in fostering a Greek recovery, as the required austerity measures will all but eliminate opportunities for economic growth.

The focal point here is the further recession of the economy through increased unemployment, for as it stands, the debt deal forces the government to enact legislation that increases the jobless pool via a combination of layoffs and wage restrictions. The Greeks are expected to eliminate 150,000 government positions by 2015, amounting to 50,000 jobs lost per year over three years which adds directly to the unemployed tally. On the flip side, the deal calls for either a 22 or 30 percent reduction in the minimum wage for employed persons (depending on age) and caps on private sector salaries until unemployment is at or below 10 percent. Wage cuts under these conditions augment unemployment because those seeking jobs remain out of work as minimum wage workers are more likely to retain their current positions. In addition, salary caps in the private sector discourage advancement, leaving entry and mid level posts occupied; not to mention the increased difficulty of attracting new hires through competitive pay. So the result is the job seekers continue without work; the employed will remain in their posts despite reduced pay, alleviating the need for businesses to hire additional labor, which results in increased jobless numbers.

Without greater funding or a retooling of the austerity requirements, the $170 billion package will only serve to delay Greece’s default, and do nothing to take the issue from the table. With nearly one fifth of the available labor without work, further austerity will only worsen living conditions, while making it more difficult for Greek businesses to remain efficient and competitive. At some point, Greece will need to pay its debts, and European leadership must avoid its default, but the Greeks will need a way to be profitable again and the ECB, IMF and EUC need to give it a way to do that. After all you don’t break a face to save a nose

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About Alexander J Smith III

  • Gary

    From all the articles that i have read it would seem to me that the best option for the greek people would be to pull out of the euro and revert to their own currency. Yes their currency would be weak but that would make exports cheap and they could work their way out of debt.It seems that Germany wants the smaller weaker countries involved in the Euro to keep the exchange rate of Euro low to help Germany with its exports.

  • Igor

    In Greece we see the utter futility of austerity as a solution to economic problems.

    After the ruling class spends years sacking the economy through the banking system you can’t expect a sudden imposition of austerity on the peasantry to make up the difference.

    In fact, austerity is the worst solution in Greece as it is in the USA. Austerity just constricts the cash flow. Besides that it is unjust to punish ordinary citizens for the crimes of the master class.

    Like Greece, the USA must pump money into the economy at the lowest level to make sure it is used effectively. Greece can issue it’s own Drachmas as it pleases. It should aim that money directly at civil servants, pensioners, etc. Any money from the IMF, EU, etc., will be seriously crippled as the bigshots whittle it down with cream skimming, commissions, royalties, etc.

    The “Masters Of the Universe” as they call themselves are basically parasitic crooks.

  • Igor

    Also, this business of “restructuring debt” is a simple scam designed to extract up-front commission money from the sucker while actually increasing his longterm debt, and his regular payments, too. And any person or company who has done it will attest to that.

    But for small companies and individuals the success of the scam depends on the sucker being convinced that he is hopeless and must voluntarily take on the chains of increased debt and a poorer life. But for countries it is a different matter because they can issue their own sovereign money, and if that waters down the value of monies held by speculators, that’s too bad.

  • Clavos

    Too bad for the speculators, true, but too bad also for the savers, those still working, anyone with any kind of income, but especially those on fixed incomes, because the currency being, as you put it, “watered down,” devalues it for everyone, not just the speculators.

  • Cannonshop

    #1 Agreed…to a point. For it to work, the Greeks would need something TO export (besides Ouzo and tourism). Kinda goes back to the root of their problem-biggest industry’s tourism, which is volatile in the BEST of times and low-paying as a general rule. Greece is trapped in the “Service Economy” trap, while trying to fund a social welfare net that would strain a strong INDUSTRIAL economy, and they hit the wall-no monies to pay for the goodies, no monies to pay for what’s already been promised, and no income to justify the credit that’s already been exhausted.

    Countries without a strong industrial economy can’t pay for extensive social welfare systems for long-if at all, and the Greeks have had an extensive social welfare system for long enough that it’s REALLY going to hurt them to cut it back.

  • Igor

    4-Clavos: inflation flushes money out of savings and into spending and investment, and that’s good. It keeps the economy from stagnating.

    In the USA most savings are by companies, which is really a deadend.

    Japan has had a slump for 23 years, caused by Demand drought, the result of the high savings rates of their people and businesses.

    It’s sometimes referred to as the “Thrift Paradox”, thrift that is good for individuals is bad for the economy.

  • Clavos

    Igor, having lived through periods of high inflation in Latin America (and here in the 70s, remember?), I’m astounded that you think there’s any good to be had from it.

    Certainly, inflation will, as you put it, “flush money out of savings,” but that can hardly be seen as positive, for when those savings are gone, people (and yes, even corporations) are left broke. Coupled with the high unemployment we’re currently suffering, that’s a recipe for disaster.

    Unbelievable.

  • Igor

    We had ‘stagflation’ in the 70s: prices went up but not wages. All of a sudden, because we had been damming up price inflation for years with Fed monetary manipulations. Eventually, the price had to be paid. Then over the next few years wages finally caught up. For example, Reagan tried to hold down Air Traffic Controllers wages by main force, even firing everyone, but eventually their wages went up to exactly where they would have been if Reagan had done nothing.

    Manipulating the economy with fed monetary policy just buys you a little time, gives an opportunity to rectify over-inflation in the fiscal end, i.e., spending too much and taxing too little.

    Reagan failed because he cut taxes and increased defense spending (the gap can’t be blamed on SS, as the reps would like to do, because SS was prefunded with SS payment increases). So Reagan left an overhang of Big debt increases to pay for his spending.