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Thread: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

  1. #11
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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by The Prof View Post
    LOL!

    from The Times:
    And?

    It was the conservative lead government that lied about the debt and deficit. This in turn meant that lenders started to doubt the word of Greece which lead to higher yields and a run on the country. The Greek deficit or debt would not have been the same problem if it was not for the trust issue that occurred because of what the Conservative lead government did.

    As for the underlying problem of Greek society, I never said it was a left or right wing issue. Those problems were built up over many many centuries, and have no real "political colour" so to say. Bureaucracy has no political colour, conservative, right, socialist or leftwing both expand the bureaucracy to meet their political needs. Look at the US.. biggest expansion of the bureaucracy in decades happened when Bush made the Department of Homeland Security. .. but since it met a so called Conservative principle of "security, defense and the law" then it is all just fine.....

    But non of this changes the fact that the whole problem started when the right wing government of Greece got caught in lieing about its debt problems and deficit for 5 years. The minimal trust there was, was thrown out the window and with no trust then Greece is a sitting duck for the speculators.
    PeteEU

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by PeteEU View Post
    It was the conservative lead government that lied about the debt and deficit.
    did it lie about the unsackability, the retirements at 45, the 16 months pay per year, the 117 bureaucratic procedures?

    LOL!

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    There is a simplistic argument that Greece's recent debt crisis is largely (maybe even wholly) a matter of political ideology. More specifically, in that line of thinking, Greece's recent debt crisis was a matter of "leftist" politics. Therefore, all Greece has to do is to change the governing ideology and that country will live happily ever after in fiscal balance and economic prosperity. If only things were so simple.

    The reality is that the seeds of Greece's debt crisis were planted many years ago. There were some extraordinary circumstances involved.

    • Dictatorship prior to 1974 that stunted Greece's economic development, leaving the country with increasingly uncompetitive industries/firms. Toward the end of the dictatorship, as the uncompetitiveness was worsening, Greece's annual economic growth was diminishing.

    • 1970s twin energy crises that created substantial economic shocks and further undermined Greece's economy.

    • Greece's internationalization of its economy that created an inherent conflict from continuing social modernization and economic/fiscal restructuring. Democratically-elected governments vacillated between the two approaches.

    • Greece's economic growth has become insufficient to exclude revenue-increasing measures when it comes to fiscal improvement.

    • Greece experienced a cyclical boom during part of the 2000s. That boom was reversed as the U.S. real estate bubble burst, U.S. financial crisis unfolded, U.S. economy moved into a severe recession, and the U.S. contagion spread though financial and trade channels. Hence, the benefits of cyclical growth dissipated while the underlying structural problems continued to fester.

    The Library of Congress' Country Study on Greece explains:

    The crisis conditions of the 1970s eventually penetrated the public sector under both conservative and socialist governments. In the 1980s, the socialist administrations of Papandreou sought to bolster areas of the economy that lagged farthest behind Greece's EC partners by extending welfare protection in a variety of forms. But this policy was not supported by tax reforms that would generate new revenue for public spending, so the deficits and public borrowing that had begun in the late 1970s intensified in the 1980s. A "roller coaster" cycle of preelection largesse and postelection stringency in public spending has been apparent under both conservative and socialist governments in the 1980s and 1990s...

    In 1990-93 the conservative government of Konstantinos Mitsotakis and his National Democracy (Nea Demokratia--ND) party undertook harsher, more persistent stabilization efforts accompanied by a privatization program for state-owned firms and a tax reduction program. Conservative policies were only partially successful, however, because they had the side effect of depressing the economy. Thus, tax revenues failed to increase at the expected rate, pressures for increased public spending remained high as unemployment and social problems worsened, and business prospects did not brighten enough to boost private demand for the state-owned enterprises put on sale in the privatization program.

    The PASOK government of Andreas Papandreou, back in power in late 1993, continued to implement stabilization policies, reorienting them by directing its tax reform policy to enforce compliance by undertaxed strata of society, by following a more pragmatic course on privatization to maximize revenue from sales, and avoiding new indirect taxes that would rekindle inflation. The initial impact of this approach on inflation was positive, dropping the annual rate to a twenty-year low of 10.6 percent. However, the problems of unemployment and industrial decline clearly persist in the mid-1990s.


    The IMF's August 2009 Article IV Consultation with Greece highlighted continuing problems concerning fiscal imbalances, demographic change (relative decline in working age population that is poised to begin this year, and diminishing economic competitiveness). The result of the demographic changes and structural challenges (some of a longstanding nature) is a worsening growth outlook. The IMF's report noted:

    Based on these data, the current decade (the 2000s) is the high point for growth in Greece. Going forward, potential output growth is projected to slow with current structural policies and demographic trends, to a low of 0.6 percent in the 2040s (when aging is at the peak). Once the dependency ratio is past its peak, potential growth improves slightly again. The key insight, however, is that looking forward, Greek growth is likely to slow substantially, unless structural reform policies are strengthened to lean against the wind of demographic transition...

    In the 2000s, Greece has been in a cyclical boom, now turning into a downturn. Thus, for the current decade as a whole, revenues have been strong whereas cyclically sensitive entitlement spending and other outlays have been relatively low. This implies that the overall fiscal balance has been more favorable than the underlying structural fiscal balance.


    Just as had been the case in the 1990s, economic growth will not be sufficient to generate sufficient tax revenues, meaning that tax cuts would worsen the fiscal situation not improve it. As a result, taxes will need to be hiked (closing avenues for evasion and placing greater emphasis on consumption taxes that are more difficult to avoid could help), spending reduced, and long-term spending growth constrained. The EU/IMF austerity measures announced today make a potentially good downpayment on the structural reforms Greece needs if it is to address its longer-term solvency issue. It remains an open question whether Greece will fulfill the terms of its austerity measures. It should be noted that the tax hikes initially could further damp short-term economic activity, but over time as Greece's long-term interest rates fall (should it succeed in meeting the terms of its austerity program) and economic growth revive, tax revenues would wind up higher than they would otherwise have been under the current system.

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by The Prof View Post
    did it lie about the unsackability, the retirements at 45, the 16 months pay per year, the 117 bureaucratic procedures?
    Both Greece's left-of-center and right-of-center governments did little to undertake the structural tax, labor market, pension, health, and public policy reforms that are required to address that country's long-term solvency issue. Their benign inaction contributed to what is anything but a benign situation.

    In democratic societies, the appetite for significant reforms can be lacking, as it would take a lot of political courage for elected officials to persuade their constituents to accept sacrifice. As constituents would be feeling the impact of the sacrifice (fewer services, less take-home pay from hiked taxes), soundbites won't suffice. A real educative effort would be required. Hence, there is a pronounced bias for accommodation.

    One can see a similar lack of appetite, at least right now, in the U.S. The Democratic Party is resistant to making meaningful changes to the nation's mandatory spending programs (absurdly, the Republicans "one-upped" the Democrats during the health care debate calling for no reductions in Medicare spending whatsoever). Republicans are loathe to accept any kind of tax hikes. Both parties see the persistent U.S. trade imbalances as a matter of "unfair" trading practices, rather than offering the more accurate but less popular prescription that competitiveness gaps are really at the foundation of those imbalances.

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by donsutherland1 View Post
    Both Greece's left-of-center and right-of-center governments did little to undertake the structural tax, labor market, pension, health, and public policy reforms that are required to address that country's long-term solvency issue. Their benign inaction contributed to what is anything but a benign situation.
    i know, it might have something to do with all those voices in the street

    In democratic societies, the appetite for significant reforms can be lacking, as it would take a lot of political courage for elected officials to persuade their constituents to accept sacrifice. As constituents would be feeling the impact of the sacrifice (fewer services, less take-home pay from hiked taxes), soundbites won't suffice.
    not to get personal, and i really couldn't care less, but why do you so often teach 5th grade lessons using post-grad syntax?

    A real educative effort would be required. Hence, there is a pronounced bias for accommodation.
    oh, brother

    One can see a similar lack of appetite, at least right now, in the U.S. The Democratic Party is resistant to making meaningful changes to the nation's mandatory spending programs (absurdly, the Republicans "one-upped" the Democrats during the health care debate calling for no reductions in Medicare spending whatsoever). Republicans are loathe to accept any kind of tax hikes. Both parties see the persistent U.S. trade imbalances as a matter of "unfair" trading practices, rather than offering the more accurate but less popular prescription that competitiveness gaps are really at the foundation of those imbalances.
    again, the 5th grade lesson thing

    thanks, cliff

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by donsutherland1 View Post
    There is a simplistic argument that Greece's recent debt crisis is largely (maybe even wholly) a matter of political ideology.
    there are a lot of simplistic arguments

    More specifically, in that line of thinking, Greece's recent debt crisis was a matter of "leftist" politics. Therefore, all Greece has to do is to change the governing ideology and that country will live happily ever after in fiscal balance and economic prosperity. If only things were so simple.
    exactly, things like this are never simple

    tax cuts would worsen the fiscal situation not improve it
    way too "simplistic" an assertion, i'm surprised

    it certainly would depend on exactly what tax cuts we were talking, when, where and how

    The EU/IMF austerity measures announced today make a potentially good downpayment on the structural reforms Greece needs if it is to address its longer-term solvency issue.
    good, but they don't appear real popular in athens

    It remains an open question whether Greece will fulfill the terms of its austerity measures.
    now you're getting there

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    It's far to easy to blame it on socialism, socialist parties. We have to look at individual policies first. There's a world of difference between German and Greek socialists. I have lived in a country where the social democrats formed many governments, the avg retirement age is 65. No one likes having to work 20 years longer, socialist or not. That's simply a difficult political message, which might explain why the conservatives proved just as unable.

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    With regard to the endemic problem tax evasion problem in Greece that PeteEU and I have noted in several threads concerning the Greek debt crises, today's edition of The New York Times has an article that reveals just how large that issue is. The newspaper reports:

    Various studies, including one by the Federation of Greek Industries last year, have estimated that the government may be losing as much as $30 billion a year to tax evasion — a figure that would have gone a long way to solving its debt problems...

    Various studies have concluded that Greece’s shadow economy represented 20 to 30 percent of its gross domestic product. Friedrich Schneider, the chairman of the economics department at Johannes Kepler University of Linz, studies Europe’s shadow economies; he said that Greece’s was at 25 percent last year and estimated that it would rise to 25.2 percent in 2010. For comparison, the United States’ was put at 7.8 percent.
    Last edited by donsutherland1; 05-02-10 at 04:36 PM.

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Quote Originally Posted by PeteEU View Post
    You said it was the socialists fault and it clearly was not. The Conservatives were the ones who lied about the depth of the problem and it was the socialists who won an election because of this and exposed them. What is being investigated now is if the previous socialist government lied about their economy when Greece entered the Eurozone. There is no doubt what so ever that the previous conservative Greek government lied to the EU and its international partners over its economy for the 5 years the Conservative right wing government was in power.
    I could call myself a rutabaga but that doesn't make it true. This collapse had nothing to do with "conservatives"; no, it was socialistic, marxist welfare statism; nothing conservative about that. But don't let that stop you from spinning...

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    Re: Greece Accepts Terms of EU-Led Bailout, ‘Savage’ Budget Cuts

    Greece was one of the fastest growing economies in the Eurozone, having an average of 4.2% real growth from 2000-2007.

    Greece has mostly failed to take advantage of years of strong growth between 2000 and 2007, one of the strongest in the euro area (4.2% per year) for fiscal consolidation. For growth rested on shaky ground: a very low rate of export (less than 20%) and a very high individual debt.
    Onze questions-réponses sur la crise grecque - Economie - Nouvelobs.com

    With this in mind, we should take into consideration why deficits were occurring in light of such high growth. Were taxes either too high, or too low? Considering the levels of spending, and no serious attempts at fiscal responsibility, Greece was undoubtedly under taxing its citizens.

    So the answer is ever so simple: Either raise taxes, cut spending, or a combination of the two.

    Given the overall size of the Greek economy (around $340 billion GDP), and the overall level of economic growth (4% annually), it is fiscally unsustainable for a government to run deficits that exceed growth, not to mention in the tune of 300% or greater. Which should be a lesson for all nations: During times of economic growth, total public sector deficit spending should not eclipse the annual rate of real growth.

    This is especially important if the majority of public debt is held in external fashion. It is estimated that around 70% of Greek public sector debt is held externally. Which goes without saying: you cannot blame speculators when you as a nation allow foreign investment (speculation in its own right) to fund your deficits.

    Many people want to blame politicians, and to a point, rightly so. However, there has been another obstacle creating quite a bit of downward pressure: The Euro!

    Being that Greece is a major importer of European goods (namely from Germany and Italy; two larger Eurozone economies), when demand for both tourism and shipping fell dramatically, companies were hard pressed to lower their prices while simultaneously paying the going rate for imports from less effected nations (Germany, Italy).

    Consider two open economies with floating individual currencies. When one economy (country 1) has a greater drop in demand than the other(country 2), the buying power in country 1 will increase relative to country 2, ceteris paribus. Country 1 will then be able to lower prices while having greater buying power in respects to trade. Negating the differentials of comparative advantage and balance of trade, country 1 will see an increase in both exports and demand, while a new equilibrium emerges in regards to leveling out in the currency pair. This dynamic cycle will continue.

    With Greece being tied to the Euro,firms cannot reduce prices to the point where Greek purchasing power increases relative to their trade partners. Such a scenario is devastating for their tourism and shipping industries. Low margin firms will run up debt, go bankrupt, or cut a considerable amount of costs in the tune of labor. This supports the negative employment outlook in Greece for the foreseeable future.

    Many smaller Eurozone economies are in the same currency situation (Solvakia, Solvenia, etc...) They also have neighboring trading partners who benefit from a cheaper currency.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

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