A problem made in the HELLENIC Republic

Posted on January 26, 2015. Filed under: Uncategorized | Tags: , , , , , , , , , , , , , |


So the topic of GREECE and what happens to Europe going forward has once again taken the centre stage, and I do wonder, when  people talk about  GREECE or other EURO area countries return to a pre-crisis period as if that was the permanent normal, and somehow the European policy makers should find a way restore it, do in fact understand the reality and the underlying causes of their current predicament?

The disappointment that people on the street across the EU feel in general is understandable, and also their frustration with the system is justifiable as the leadership have so far failed to deliver for the people. But that’s not the complete picture. The reality is, the crises that unfolded in many Euro area countries was mostly of their own making, and the life style that most people got used to  during  good times wasn’t paid for, and therefore the expectation of going back to what some people might mistakenly consider normal is not only unrealistic but also dangerous. A wholesale reorganisation of the overall economy of the Euro area countries is a must, and this has to be a continuous ongoing reality because without it, the EUROPEAN UNION as we know it today will most likely fail to remain relevant in a very competitive global economy going forward.

And  social economics isn’t about giving away freebies that a nation and its people can’t afford , but it should be about creating and giving equal opportunity to everyone so people can make their own future. A social safety net should not be designed as a net that traps people but it should serve as a spring board that provides or facilitates  a safe landing when you fall , but is also able to push people back up again.

The problem of Euro area nations including of GREECE isn’t just that the country has too much debt overhang, yes in case of GREECE , the GDP to debt ratio of 175% is certainly quite high, but Greece spends less than 4.4 %  of its GDP to service these debts, and in fact on parts of its loans, Greece currently pays no interest, also it is able to collect back the yield it pays to the ECB and other central banks who hold the country’s debt so this lowers the overall debt servicing costs further to less than 2.7%. Also the average maturity of GREEK debt is over 16 years, greater than that of Germany, France or Italy for that matter. So the write down of GREEK debt on its own isn’t going to drive growth. However, a case can made for extending the loans by another 8 to 10 years, and also create a provision that allows for a freeze in interest payment if the country’s growth starts to falter. This exercise will most certainly make the overall debt profile of the country look more sustainable, but it won’t do much with regards to growth unless and until Greece becomes an attractive investment story.

The austerity has killed consumption in the country as the disposable income is almost non existent, and also created a huge human costs in terms of long term unemployment, loss of basic healthcare support , broken families and communities and a lost young generation. But this situation can drastically deteriorate if GREECE was outside of the Euro area, a super hyper inflation followed by catastrophic bankruptcy of the country  creating a hellish type worst case scenario with a very bleak future from which coming back will require a powerful miracle.

The average people on the street have paid a very heavy price and continue to do so for the mistakes made by a reckless political class and also some of the rich and famous who continued to ( and still do in some cases )  to misuse the system driven mostly by greed. The GREEK economy was too small at the time and is even smaller today to sustain a non productive spending spree of any government. So a restructuring and reorganisation of the overall GREEK economy has to be a priority for the next government. The problem facing the  Greek economy  today wasn’t created outside but it was made and created in the HELLENIC Republic itself.

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